DEF 14A 1 d689626ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

Filed by the Registrant    

Filed by a Party other than the Registrant    

Check the appropriate box:

 

   Preliminary Proxy Statement       Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
   Definitive Proxy Statement
   Definitive Additional Materials      
   Soliciting Material under §240.14a-12      

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Name of Registrant as Specified In Its Charter)

 

          

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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From Our

Chairman of the Board

 

 

   

Dear Shareholder,

 

 

 

LOGO

 

Dr. Sol J. Barer

 

 

 

     

This year we achieved some important milestones in our journey to stabilize our business and build a solid future for Teva. In December 2017, we began a two-year restructuring plan to significantly reduce our cost base, unify and simplify the organization, and improve business performance, profitability, cash flow generation and productivity. The plan was chiefly designed to address the expected decline in our revenues and profits, while servicing our debt, and includes reducing our headcount, closing, consolidating or divesting manufacturing and other facilities, and optimizing our product portfolio and pipeline. As a result, we have reduced our net debt during 2018 by 14% to $27.1 billion and are on track to reduce our cost base by $3 billion by the end of 2019.

 

During 2018, we successfully launched our novel biologic migraine drug AJOVY® in the U.S. Biologics are an increasingly important part of our strategy. We are seeing increased sales of AUSTEDO® for Huntington’s disease and other movement disorders, have maintained the market share of our leading MS therapy COPAXONE® in the face of increased competition, and have stabilized our U.S. generics business after a long period of significant deterioration, while launching a long list of generics.

 

In summarizing the year, we achieved our financial targets in 2018 and we are on track to achieve our restructuring goals. The business challenges we faced in 2018 will continue into 2019, and our forecast for 2019 reflects contraction in our top and bottom lines. We will continue executing the second year of our restructuring plan.

 

Our commitment to good corporate governance, from the Board of Directors and its committees through all levels of the organization, together with our strong culture of compliance, help ensure that we execute our strategy and do business the right way.

 

Our President and CEO, Kåre Schultz, together with his entire management team, have been doing an excellent job leading Teva and positioning it for the turnaround that we need. The initiatives introduced under Kåre are allowing Teva to become a more stable, less leveraged, leading pharmaceutical company.

 

I am personally very cognizant of the many dedicated employees who work tirelessly for Teva’s success around the world and I believe they are one of our greatest assets. We thank them all for their contribution to Teva.

 

As always, at the heart of everything we do, we are keenly focused on the needs of patients around the world, providing them with quality medicines to improve their lives. We do this by continuing to develop new and innovative medicines and expanding access in markets to our high quality generic medicines.

 

Teva strongly believes in the importance of being a good corporate citizen. We focus our social responsibility efforts on contributing to healthy communities and leading a responsible business. We listen to our stakeholders and understand the important issues facing our society, from the increase in drug prices to the serious impact of the opioid epidemic. We share these concerns and are eager to identify collaborative solutions that will benefit and improve the lives of people everywhere. Particularly with regard to the opioid epidemic, our Board has been regularly and actively overseeing Teva’s efforts to address this important issue and, in response to feedback from our shareholders, we will release an independent directors’ report outlining these efforts by the end of the year.

 

This year we engaged in a productive shareholder outreach effort to deepen our relationship with our shareholders, to hear what they think about our corporate governance and executive compensation programs and to solicit important shareholder feedback. These meetings were very productive and are impacting how we think about issues that matter to our investors, many of which are leading to immediate action at this year’s meeting of shareholders. We hope to continue to build upon these relationships in years to come to better understand our shareholders’ concerns.

 

On behalf of the Board of Directors and the management team, we thank you, our shareholders, for your faith and belief in Teva. We would not be able to execute on our important mission without your continuing support.

   

 

Sincerely,

 

 

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Dr. Sol J. Barer

Chairman of the Board of Directors

April 16, 2019


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                                Notice of 2019 Annual Meeting of Shareholders

 

DATE AND TIME:   Tuesday, June 11, 2019, at 9:00 a.m., local time
PLACE:  

Teva’s executive offices at

5 Basel Street

Petach Tikva, 4951033 Israel

ITEMS OF BUSINESS:  

Proposal 1: To appoint the following persons: Amir Elstein, Roberto A. Mignone and Dr. Perry D. Nisen to serve on the Board of Directors until our 2022 annual meeting of shareholders.

 

Proposal 2: To approve, on a non-binding advisory basis, the compensation for Teva’s named executive officers.

 

Proposal 3: To approve an amended Compensation Policy with respect to the terms of office and employment of Teva’s Executive Officers and Directors, substantially in the form attached as Appendix A to this Proxy Statement.

 

Proposal 4: Director Compensation:

 

(a)   To approve the compensation to be provided to Teva’s non-employee directors; and

 

(b)   To approve the compensation to be provided to Teva’s non-executive Chairman of the Board.

 

Proposal 5: To appoint Kesselman & Kesselman, a member of PricewaterhouseCoopers International Ltd., as Teva’s independent registered public accounting firm until Teva’s 2020 annual meeting of shareholders.

 

In addition, shareholders will consider Teva’s annual consolidated financial statements for the year ended December 31, 2018.

 

The Board of Directors recommends that you vote FOR all proposals.

 

Teva urges all of its shareholders to review its annual report (“Annual Report”) on Form 10-K for the year ended December 31, 2018.

RECORD DATE:   Only holders of ordinary shares (or American Depositary Shares representing such ordinary shares) of record at the close of business on May 2, 2019 will be entitled to vote at the Annual Meeting. Two holders of ordinary shares who are present at the Annual Meeting, in person or by proxy or represented by their authorized persons, and who hold in the aggregate twenty-five percent or more of such ordinary shares, shall constitute a legal quorum. Should no legal quorum be present one-half hour after the scheduled time, the Annual Meeting shall be adjourned to one week from that day, at the same time and place.

By Order of the Board of Directors,

 

 

 

LOGO

Dov Bergwerk

Senior Vice President,

Company Secretary

April 16, 2019

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on June 11, 2019

The accompanying Proxy Statement and our Annual Report are available at www.tevapharm.com/2019proxymaterials. We expect the proxy materials to be mailed and/or made available on or before April 18, 2019.


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Table of Contents

 

Questions and Answers About the Annual Meeting

     1  

Proposal 1: Election of Directors

     7  

Corporate Governance and Director Compensation

     14  

Executive Compensation

     30  

Compensation Committee Interlocks and Insider Participation

     88  

Proposal 2: Advisory Vote on Compensation of Named Executive Officers

     89  

Proposal 3: Approval of Amended Compensation Policy

     90  

Proposal 4: Approval of Director Compensation

     93  

Proposal 5: Appointment of Independent Registered Public Accounting Firm

     96  

Presentation of 2018 Financial Statements

     98  

Section  16(a) Beneficial Ownership Reporting Compliance

     98  

Security Ownership

     99  

Securities Authorized for Issuance Under Equity Compensation Plans

     101  

Related Party Transactions

     102  

Shareholder Proposals for the 2019 Annual Meeting and the 2020 Annual Meeting

     103  

Incorporation by Reference

     104  

Householding of Proxy Materials

     104  

Appendix A—Compensation Policy, as amended

     A-1  

 

 

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Questions and Answers About the Annual Meeting

The Meeting

When and where will the Annual Meeting be held?

The 2019 Annual Meeting of Shareholders (the “Annual Meeting”) of Teva Pharmaceutical Industries Limited (“we,” “us,” “our” or “Teva”) will be held at Teva’s executive offices at 5 Basel Street, Petach Tikva, 4951033 Israel, on Tuesday, June 11, 2019, at 9:00 a.m., local time.

Who may attend the Annual Meeting?

Attendance at the Annual Meeting, including any adjournments or postponements thereof, will be limited to holders of record as of the close of business on May 2, 2019 (the “Record Date”) who hold ordinary shares or American Depositary Shares (“ADSs”), directly in their own name, and beneficial owners who hold ordinary shares or ADSs through a broker, bank or other nominee rather than directly in their own name, and each of their legal proxy holders or their authorized persons. To gain admission to the Annual Meeting, one must have a form of government-issued photograph identification and proof of ownership as of the Record Date. Legal proxy holders and authorized persons will also need to submit a document of appointment, in accordance with Teva’s Articles of Association.

What is a quorum for the Annual Meeting?

A minimum of two holders of ordinary shares (or ADSs representing such ordinary shares) who are present at the Annual Meeting, in person or by proxy or represented by their authorized persons, and who hold in the aggregate twenty-five percent or more of such ordinary shares (or ADSs representing such ordinary shares), will constitute a legal quorum. At the close of business on March 31, 2019, 1,091,598,003 ordinary shares were outstanding and entitled to vote. Ordinary shares held in treasury will not be included in the calculation to determine if a quorum is present. Abstentions and broker non-votes will be considered present and entitled to vote for the purpose of determining the presence of a quorum. Should no legal quorum be present one half hour after the scheduled time, the Annual Meeting will be adjourned to one week from that day, at the same time and place. Should such legal quorum not be present one half hour after the time set for the Annual Meeting, as adjourned, any two holders of ordinary shares present, in person or by proxy, who jointly hold twenty percent or more of such ordinary shares (or ADSs representing ordinary shares) will then constitute a legal quorum.

Who may vote at the Annual Meeting?

Ordinary Shares

Holders of record of ordinary shares as of the Record Date may vote at the Annual Meeting.

Beneficial owners who hold ordinary shares through a broker, bank or other nominee rather than directly in their own name have the right to direct their broker, bank or other nominee how to vote using the instructions provided by the broker, bank or nominee, but may not vote their shares in person at the Annual Meeting unless they obtain a legal proxy giving them the right to vote their shares at the Annual Meeting from the broker, bank or other nominee holding their shares in street name.

ADSs

As an ADS holder, you will not be entitled to vote in person at the Annual Meeting. To the extent you provide the Depositary (as defined below) or your broker, bank or other nominee, as applicable, with voting instructions, the Depositary has advised us that it will vote the ordinary shares underlying your ADSs in accordance with your instructions.

 

 

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You also may exercise the right to vote the ordinary shares underlying your ADSs by surrendering your ADSs to Citibank, N.A., as depositary for the ADSs (the “Depositary”) for cancellation and withdrawal of the corresponding ordinary shares pursuant to the terms described in the Second Amended and Restated Deposit Agreement (the “Deposit Agreement”), dated as of December 4, 2018, by and among the Company, the Depositary, and the holders and beneficial owners of ADSs. In order to be able to attend, and vote at the Meeting, you must complete the ADS cancellation process and become a holder of the corresponding ordinary shares by the Record Date. However, it is possible that you may not have sufficient time to withdraw your ordinary shares and vote them at the upcoming Annual Meeting as a holder of record of ordinary shares as of the Record Date. Holders of ADSs may incur additional costs associated with the ADS cancellation process.

Voting

How can I vote my ordinary shares or ADSs?

Your vote is very important and we encourage you to vote your shares and submit your proxy regardless of whether or not you plan to attend the Annual Meeting in person. Each issued and outstanding ordinary share (or ADS representing an ordinary share) shall entitle its holder to one vote on each matter properly submitted at the Annual Meeting. Ordinary shares held in treasury by Teva do not entitle Teva to vote in respect thereof at the Annual Meeting.

Ordinary Shares

Record holders of ordinary shares: If you are the record holder of ordinary shares as of the Record Date, you have the right to (i) vote in person at the Annual Meeting, (ii) vote by submitting your proxy card by mail, (iii) grant your voting proxy to an authorized person, or (iv) if you are a Non-Registered Holder (as defined below), vote by submitting your proxy card and proof of ownership by mail or by submitting your voting instructions through the electronic voting system of the Israeli Securities Authority.

If you choose to submit your proxy card by mail, mark the enclosed proxy card in accordance with the instructions, date, sign and return it to Teva. To be taken into account, your proxy card must be received by Teva by 9:00 a.m., Israel time, on June 7, 2019, unless determined otherwise by the chairman of the Annual Meeting.

If you appoint another person to act as your authorized proxy, such proxy must be written and made known to Teva by 9:00 a.m., Israel time, on June 7, 2019, unless determined otherwise by the chairman of the Annual Meeting.

Non-registered holders of ordinary shares: If you held ordinary shares as of the Record Date pursuant to Section 177(1) of the Israeli Companies Law, 5759-1999, as amended (the “Israeli Companies Law”), whose shares are held through a nominee company (a “Non-Registered Holder”), you may submit your vote (i) by submitting your proxy card by mail, together with a proof of share ownership as of the Record Date, by 9:00 a.m., Israel time, on June 7, 2019, unless determined otherwise by the chairman of the Annual Meeting; or (ii) through the electronic voting system of the Israeli Securities Authority. In order to vote through such electronic voting system, you will need to identify yourself with a personal access code obtained from a member of the Tel Aviv Stock Exchange (“TASE”), which is usually the bank where you held your ordinary shares as of the Record Date. To be taken into account, your vote must be submitted at least six hours prior to the Annual Meeting (i.e., before 3:00 a.m., Israel time, on June 11, 2019). You can access the voting system at https//:votes.isa.gov.il, or through the hyperlink included in Teva’s filing with respect to this Annual Meeting as publicized on MAGNA, the Israeli Securities Authority’s electronic filing system, at www.magna.isa.gov.il, or on the TASE’s website, at www.maya.tase.co.il. A Non-Registered Holder may contact the TASE member holding the shares for instructions on how to vote the ordinary shares and should carefully follow the voting procedures provided.

 

 

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ADSs

The Deposit Agreement sets out the rights of ADS holders as well as the rights and obligations of the Depositary. Each ADS represents the right to receive one ordinary share deposited with Citibank Tel Aviv, as custodian for the Depositary under the Deposit Agreement or any successor custodian.

Record holders of ADSs: If you are a record holder of ADSs as of the Record Date, you will receive instructions from the Depositary for the ordinary shares underlying your ADSs to be voted. If you held ADSs directly as of the Record Date, you have the right to instruct the Depositary how to vote. So long as the Depositary receives your voting instructions by 10:00 a.m., Eastern time, on June 7, 2019, it will, to the extent practicable and subject to Israeli law and the terms of the Deposit Agreement, vote the underlying ordinary shares as you instruct.

Beneficial owners of ADSs that are registered in the name of a broker, bank or other agent: If you beneficially own ADSs as of the Record Date through a broker, bank or other nominee, such intermediary will provide you instructions on how you may vote the ordinary shares underlying your ADSs. Please check with your broker, bank or other nominee, as applicable, and carefully follow the voting procedures provided to you.

How will my ordinary shares or ADSs be voted if I do not vote?

Ordinary Shares

If you hold ordinary shares and do not (i) vote in person at the Annual Meeting, (ii) vote by submitting your proxy card by mail, (iii) grant your voting proxy to an authorized person or (iv) as a Non-Registered Holder, vote by submitting your proxy card and proof of ownership by mail or through the electronic voting system of the Israeli Securities Authority, your ordinary shares will not be counted as votes cast and will have no effect on the outcome of the vote with respect to any matter.

ADSs

If you are a record holder of ADSs and do not instruct the Depositary how to vote the ordinary shares underlying your ADSs, the ordinary shares underlying your ADSs will not be counted as votes cast and will have no effect on the outcome of the vote with respect to any matter.

If you are a beneficial owner whose ADSs are held of record by a broker, your broker has “discretionary voting” authority under the New York Stock Exchange (“NYSE”) rules to vote the shares represented by your ADSs on “routine” matters, such as the ratification of appointment of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Ltd., as our independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority absent specific instructions from you to vote on the following “non-routine” matters: the election of directors, the advisory vote on the compensation of our named executive officers, the approval of the amended Compensation Policy or the approval of director compensation, in which case a broker non-vote will occur and the shares represented by your ADSs will not be voted on these matters.

What are the voting requirements to elect the directors and to approve each of the proposals discussed in this Proxy Statement?

The affirmative vote of the holders of a majority of Teva ordinary shares participating and voting at the Annual Meeting, in person or by proxy or through their representatives, is required to adopt each of the proposals. Cumulative voting is not permitted.

Pursuant to the Israeli Companies Law, Proposal 3 further requires that either (i) such majority includes at least a majority of the holders of ordinary shares who are not controlling shareholders and who do not have a personal benefit or other interest in the matter who are present and voting (abstentions are disregarded) or (ii) the holders of ordinary shares who are not controlling shareholders and who do not have a personal

 

 

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benefit or other interest in the matter who were present and voted against the approval of such proposals hold, in the aggregate, two percent or less of the voting power in Teva (the “Disinterested Majority”). Accordingly, each shareholder voting on Proposal 3 is required to inform Teva prior to voting whether or not the shareholder is a controlling shareholder of Teva and whether or not the shareholder has a personal benefit or other interest in the proposal. Otherwise, pursuant to the Israeli Companies Law, the shareholder’s vote on such proposal cannot be counted in determining whether the above Disinterested Majority approval requirements are satisfied.

Pursuant to the Israeli Companies Law, such personal benefit or other interest with respect to Proposal 3 is a personal benefit, gain or other interest derived by a shareholder (or a relative or related entity described below) from approving Teva’s amended Compensation Policy with respect to the compensation of Teva’s directors and executive officers. Any benefit or interest arising solely from holding Teva shares is not considered such a personal benefit or other interest under the Israeli Companies Law. Such personal benefit or other interest includes any personal benefit or other interest of (i) a shareholder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblings or parents or the spouse of any of such persons, (ii) any entity in which a shareholder or one of its aforementioned relatives serves as a director or chief executive officer, owns 5% or more of such entity’s outstanding shares or voting rights or has the right to appoint one or more directors or the chief executive officer and (iii) anyone that has a personal benefit or other interest voting by proxy on behalf of another person (whether or not such other person has a personal benefit or other interest) or anyone that has a personal benefit or other interest voting by granting a proxy to another person (whether or not such other person has a personal benefit or other interest), in each case with respect to Proposal 3.

Under the Israeli Companies Law, a “controlling shareholder” is a shareholder who has the ability to direct the activities of a company (other than if such ability originates solely from holding a position in such company). A shareholder holding 50% or more of the voting rights of a company is presumed to be a controlling shareholder. Teva is not currently aware of any “controlling shareholder,” as defined under the Israeli Companies Law. In addition, it believes that the vast majority of its shareholders should not have a personal benefit or other interest in Proposal 3.

Under the terms of the Deposit Agreement, the Depositary shall endeavor (insofar as is practicable and in accordance with our Articles of Association) to vote or cause to be voted the number of ordinary shares represented by ADSs in accordance with the instructions provided by the holders of ADSs to the Depositary by the deadline set. If instructions are not received by the Depositary by the deadline, the ordinary shares represented by such uninstructed ADSs shall not be voted at the Annual Meeting. If instructions are signed and timely returned to the Depositary, but no specific voting instruction is marked for a proposal, the holder shall be deemed to have directed the Depositary to give voting instructions “FOR” the unmarked proposal; provided that if the personal interest section is not completed, the holder’s vote for Proposal 3 will not be counted for purpose of the Disinterested Majority.

Can I change my vote?

Ordinary Shares

If you hold ordinary shares of record and submit your proxy card to vote by mail or appoint a proxy in advance of the Annual Meeting, you may change your vote by delivering a valid later-dated proxy within the time limitations set forth above, or voting in person at the Annual Meeting.

If you are a Non-Registered Holder of ordinary shares and vote through the electronic voting system of the Israeli Securities Authority, you may revoke your vote through such voting system at least six hours prior to the Annual Meeting (i.e., before 3:00 a.m., Israel time, on June 11, 2019), or by voting in person at the Annual Meeting. If you are a Non-Registered Holder of ordinary shares and submit your proxy card to vote by mail or appoint a proxy in advance of the Annual Meeting, you may change your vote by delivering a valid later-dated proxy within the time limitations set forth above, or voting in person at the Annual Meeting.

 

 

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Attendance at the Annual Meeting will not cause your previous vote to be revoked unless you specifically so request.

ADSs

If you are the record owner of ADSs, you must follow the instructions provided by the Depositary in order to change your vote. If you hold your ADSs through a broker, bank or other nominee, you must follow the instructions provided by your broker, bank or other nominee, in order to change your vote. The last instructions you submit prior to the deadline indicated by the Depositary or the broker, bank or other nominee, as applicable, will be used to instruct the Depositary how to vote the ordinary shares underlying your ADSs. Attendance at the Annual Meeting will not cause your previous vote to be revoked.

Proxy Materials

Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials?

We distribute our Notice of Annual Meeting of Shareholders, Proxy Statement and Annual Report (collectively, the “proxy materials”) to certain shareholders via the Internet under the “Notice and Access” approach permitted by rules of the U.S. Securities and Exchange Commission (the “SEC”). This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient method of accessing the materials and voting. On or by April 18, 2019, we expect to have mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders containing instructions on how to access the proxy materials on the Internet.

Can I access the proxy materials on the Internet?

The proxy materials are available on our website at www.tevapharm.com/2019proxymaterials. Information on our website is not part of the proxy materials and is not incorporated into the proxy statement by reference. Record owners of our ADSs may also access the proxy materials at www.investorvote.com/teva by following the instructions provided by the Depositary. Beneficial owners of our ADSs may also access the proxy materials at www.proxyvote.com by following the instructions provided by your broker, bank or other nominee. Instead of receiving future proxy statements and accompanying materials by mail, most shareholders and ADS holders can elect to receive an e-mail that will provide electronic links to them. Opting to receive your proxy materials online will conserve natural resources and will save us the cost of producing documents and mailing them to you. The proxy materials are also available through Teva’s public filing on MAGNA (the Israeli Securities Authority’s electronic filing system) at www.magna.isa.gov.il, on the TASE’s website at www.maya.tase.co.il, or on the SEC’s website at www.sec.gov.

How do I request paper copies of the proxy materials at no charge?

You may contact Investor Relations in the United States at +1 (215) 591-8912 or in Israel at +972 (3) 926-7516, by sending an email to TevaIR@tevapharm.com, or by making a request on our website at www.tevapharm.com/InfoRequest, by May 24, 2019.

If you are a record owner of ADSs, you may request proxy materials at www.investorvote.com/teva, by calling toll-free within the U.S. at (866) 641-4276 or by sending an email to investorvote@computershare.com, by May 24, 2019 and following the instructions provided by the Depositary.

If you are a beneficial owner of ADSs, you may request proxy materials by following the instructions at www.proxyvote.com or by calling toll free within the U.S. at (800) 579-1639 or by sending an email to sendmaterial@proxyvote.com by May 24, 2019 and following the instructions provided by your broker, bank or other nominee.

 

 

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Other Questions

Could other matters be decided at the Annual Meeting?

The only items of business that our Board of Directors intends to present at the Annual Meeting are set forth in this Proxy Statement. As of the date of this Proxy Statement, no shareholder has advised us of the intent to present any other matter, and we are not aware of any other matter to be presented at the Annual Meeting. However, according and subject to the Israeli Companies Law and our Articles of Association, certain shareholders are entitled to propose items to the agenda. For more information, please see “Shareholder Proposals for the 2019 Annual Meeting and the 2020 Annual Meeting” below.

Who will pay for the cost of this proxy solicitation?

Teva will bear the entire cost of solicitation of proxies, including preparation, assembly, printing, and mailing of this Proxy Statement, the voting instruction card and any additional information furnished to shareholders. Teva may reimburse brokerage firms and other persons representing beneficial owners of ordinary shares or ADSs for reasonable expenses incurred by them in forwarding proxy soliciting materials to such beneficial owners. We retained MacKenzie Partners, Inc. to assist with the solicitation of proxies for a fee in the amount of $20,000, plus reimbursable expenses. In addition to solicitation by mail, certain of our directors, officers and regular employees, without additional remuneration, may solicit proxies by telephone, facsimile or personal contact.

Who can I contact if I require further assistance?

If you need assistance in submitting your proxy or have questions regarding the Annual Meeting, please contact our Investor Relations department by email at TevaIR@tevapharm.com or by mail at Teva Pharmaceutical Industries Ltd., 5 Basel Street, Petach Tikva, 4951033 Israel, attention: Investor Relations or by telephone at +1 (215) 591-8912. You may also contact our proxy solicitor, MacKenzie Partners, Inc., by email at proxy@mackenziepartners.com or by calling toll free within the U.S. at +1 (800) 322-2885 or outside the U.S. at + 1 (212) 929-5500.

 

 

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Proposal 1: Election of Directors

In recent years, we strengthened our Board of Directors with the addition of new highly qualified and talented directors, including several directors with global pharmaceutical experience and other qualifications, adding expertise as well as diversity to our Board of Directors. Through these efforts, we have reduced the average tenure of our directors from 5.1 years of service prior to the 2017 annual meeting of shareholders to 3.5 years. We have reduced the average age of our directors from 67 prior to the 2017 annual meeting of shareholders to 62. Dr. Barer, our Chairman of the Board, is an independent director under NYSE regulations. Kåre Schultz, our President and Chief Executive Officer (the “President and CEO”) serves on the Board, which facilitates collaboration between the Board of Directors and management. Corporate governance remains a high priority and we continue to evaluate the size and composition of the Board to ensure that it maintains dynamic, exceptionally qualified leadership.

Following the recommendation of our Corporate Governance and Nominating Committee, the Board of Directors recommends that shareholders approve the appointment of Amir Elstein, Roberto A. Mignone and Dr. Perry D. Nisen as directors to serve until our 2022 annual meeting of shareholders. All nominees are currently members of the Board of Directors and all nominees qualify as independent directors under NYSE regulations.

In accordance with the Israeli Companies law, all nominees for election as directors at the Annual Meeting have declared in writing that they possess the requisite skills and expertise, as well as sufficient time, to perform their duties as directors.

 

 

LOGO

  

 

The Board of Directors recommends that shareholders vote FOR the appointment of Amir Elstein, Roberto A. Mignone and Dr. Perry D. Nisen as directors, each to serve until Teva’s 2022 annual meeting of shareholders.

Directors

The following table sets forth information regarding the directors and director nominees of Teva as of April 16, 2019:

 

Name

 

    

    Age    

 

    

 

    Director    

Since

 

    

 

    Term    

Ends

 

 

Dr. Sol J. Barer—Chairman

 

      

 

 

 

 

71

 

 

 

      

 

 

 

 

2015

 

 

 

      

 

 

 

 

2020

 

 

 

 

Kåre Schultz

 

      

 

 

 

 

57

 

 

 

      

 

 

 

 

2017

 

 

 

      

 

 

 

 

(1

 

 

)

 

 

Rosemary A. Crane

 

      

 

 

 

 

59

 

 

 

      

 

 

 

 

2015

 

 

 

      

 

 

 

 

2021

 

 

 

 

Amir Elstein

 

      

 

 

 

 

63

 

 

 

      

 

 

 

 

2009

 

 

 

      

 

 

 

 

2019

 

 

 

 

Murray A. Goldberg

 

      

 

 

 

 

74

 

 

 

      

 

 

 

 

2017

 

 

 

      

 

 

 

 

2020

 

 

 

 

Jean-Michel Halfon

 

      

 

 

 

 

67

 

 

 

      

 

 

 

 

2014

 

 

 

      

 

 

 

 

2020

 

 

 

 

Gerald M. Lieberman

 

      

 

 

 

 

72

 

 

 

      

 

 

 

 

2015

 

 

 

      

 

 

 

 

2021

 

 

 

 

Roberto A. Mignone

 

      

 

 

 

 

47

 

 

 

      

 

 

 

 

2017

 

 

 

      

 

 

 

 

2019

 

 

 

 

Dr. Perry D. Nisen

 

      

 

 

 

 

63

 

 

 

      

 

 

 

 

2017

 

 

 

      

 

 

 

 

2019

 

 

 

 

Nechemia (Chemi) J. Peres

 

      

 

 

 

 

60

 

 

 

      

 

 

 

 

2017

 

 

 

      

 

 

 

 

2020

 

 

 

 

Prof. Ronit Satchi-Fainaro

 

      

 

 

 

 

47

 

 

 

      

 

 

 

 

2018

 

 

 

      

 

 

 

 

2021

 

 

 

(1)

Mr. Schultz’s term ends contemporaneously with his term as President and CEO.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    7


Table of Contents

Proposal 1: Election of Directors

 

 

Persons Being Considered for Election at this Annual Meeting

 

 

LOGO

 

Amir Elstein

Independent Director

 

Committees:

  Corporate Governance and Nominating (Chair)

  Audit

  Finance and Investment

 

Mr. Elstein rejoined the Board of Directors in 2009. From January 2014 to July 2014, he served as Vice Chairman of the Board of Directors of Teva. Mr. Elstein serves as Chairman of the Board of Tower Semiconductor Ltd. and Chairman of the Israel Democracy Institute. Mr. Elstein also serves as Chairman and/or as a member of the board of directors of several academic, scientific, educational, social and cultural institutions. Mr. Elstein served as the Chairman of the Board of Governors of the Jerusalem College of Engineering from 2009 to 2018 and as Chairman of the Board of Directors of Israel Corporation from 2010 to 2013. From 2004 to 2008, Mr. Elstein was a member of Teva’s senior management, where his most recent position was Executive Vice President, Global Pharmaceutical Resources. From 1995 to 2004, Mr. Elstein served on Teva’s Board of Directors. Prior to joining Teva as an executive in 2004, Mr. Elstein held a number of executive positions at Intel Corporation, most recently as General Manager of Intel Electronics Ltd., an Israeli subsidiary of Intel Corporation. Mr. Elstein received a B.Sc. in physics and mathematics from the Hebrew University in Jerusalem, an M.Sc. in solid state physics from the Hebrew University and a diploma in senior business management from the Hebrew University.

 

 

 

Qualifications:

 

Mr. Elstein’s leadership positions in various international corporations, including his experience as a chairman of international public companies and his service as an executive officer at Teva and other companies, provides global business management and pharmaceutical expertise.

 

 

 

 

 

LOGO

 

Roberto A. Mignone

Independent Director

 

Committees:

  Finance and Investment (Chair)

  Audit

  Science and Technology

 

Mr. Mignone joined the Board of Directors in July 2017. Mr. Mignone is the Founder and Managing Partner of Bridger Management LLC, a multi-billion dollar investment management firm specializing in long-term equity strategies, since 2000. Since inception, Bridger Management has focused on the healthcare sector and has developed considerable research expertise in support of its investments. In addition to healthcare, Bridger Management invests in global consumer, technology and financial services companies. Prior to Bridger Management, Mr. Mignone co-founded and served as a partner of Blue Ridge Capital LLC from 1996 to 2000, an investment management firm with specialties in health care, technology, media, telecommunications, and financial services. Mr. Mignone serves as a trustee and member of the Finance Committee and Nominating Committee of the New York University Langone Medical Center. He received a Bachelor of Arts degree in classics from Harvard College and an M.B.A. from Harvard University Graduate School of Business Administration.

 

 

 

Qualifications:

 

With his long career as a global investment professional with a specialty in healthcare, Mr. Mignone provides the Board with finance and management expertise with respect to large, complex pharmaceutical organizations.

 

 

 

 

 

8     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


Table of Contents

Proposal 1: Election of Directors

 

 

 

 

LOGO

 

Dr. Perry D. Nisen

Independent Director

 

Committees:

  Science and Technology (Chair)

  Compliance

 

Dr. Nisen joined the Board of Directors in July 2017. In 2018 he joined Soffinova Investments as an Executive Partner, Private Equity. From 2014 to 2017, Dr. Nisen served as Chief Executive Officer and the Donald Bren Chief Executive Chair of Sanford Burnham Prebys Medical Discovery Institute. From 2004 to 2014, Dr. Nisen held various roles at GlaxoSmithKline, most recently as Senior Vice President, Science and Innovation. Prior to that, Dr. Nisen served as Divisional Vice President, Global Oncology Development and as Divisional Vice President, Cancer Research at Abbott Laboratories from 1997 to 2004. Previously, he was the Lowe Foundation Professor of Neuro-Oncology at the University of Texas Southwestern Medical Center. Dr. Nisen has served as a director of Mirna Therapeutics since 2016. He received a B.S. from Stanford University, a Master’s degree in molecular biology, and an M.D. and PhD from Albert Einstein College of Medicine.

 

 

 

Qualifications:

 

Dr. Nisen’s research and development experience, management positions in leading pharmaceutical companies and service on boards provides a unique perspective on Teva’s business and R&D activities.

 

 

 

As required by Israeli law, all of the foregoing director candidates have declared in writing that they possess the requisite skills and expertise, as well as sufficient time, to perform their duties as a director.

Continuing Directors

 

 

LOGO

 

Dr. Sol J. Barer

Chairman of the Board

Independent Director

 

Dr. Barer became Chairman of the Board of Directors on February 6, 2017, after joining Teva’s Board of Directors in January 2015. Dr. Barer is Managing Partner at SJ Barer Consulting. He also serves as an advisor to the Israel Biotech Fund. From 1987 to 2011, he served in top leadership roles at Celgene Corporation, including as Executive Chairman from 2010 to 2011, Chairman and CEO from 2007 to 2010, CEO from 2006 to 2010, President and Chief Operating Officer from 1994 to 2006 and President from 1993 to 1994. Prior to that, he was a founder of the biotechnology group at the chemical company Celanese Corporation, which was later spun off as Celgene. Dr. Barer serves on the board of directors of Aevi Genomics (formerly Medgenics) as chairman and on the board of directors of Contrafect as lead director. He served as Chairman of the Board of Edge Therapeutics from 2013 to March 2019, on the board of Aegerion Pharmaceuticals from 2011 to 2016, on the board of Amicus Therapeutics from 2009 to February 2017 and as Chairman of the Board of InspireMD from 2011 to June 2017. Dr. Barer is Founding Chair of the Center for Innovation and Discovery at the Hackensack Meridian Medical School. Dr. Barer received his Ph.D. in organic and physical chemistry from Rutgers University and his B.S. in chemistry from Brooklyn College of the City University of New York.

 

 

 

Qualifications:

 

With his long career as a senior pharmaceutical executive and leadership roles in various biopharmaceutical companies, Dr. Barer provides broad and experienced knowledge of the global pharmaceutical business and industry as well as extensive scientific expertise.

 

 

 

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    9


Table of Contents

Proposal 1: Election of Directors

 

 

 

 

LOGO

 

Kåre Schultz

Director and President and
Chief Executive Officer

 

Mr. Schultz became Teva’s President and CEO and a member of the Board of Directors on November 1, 2017. From May 2015 to October 2017, Mr. Schultz served as President and Chief Executive Officer of H. Lundbeck A/S. Prior to that, Mr. Schultz worked for nearly three decades at Novo Nordisk, where he served in a number of leadership roles, including Chief Operating Officer, Vice President in Product Supply and Director of Product Planning and Customer Services in the Diabetes Care Division. Mr. Schultz has held positions at McKinsey and Anderson Consulting. Mr. Schultz has served as a member of the Board of Directors of LEGO A/S since 2007. From 2010 to 2017, he served as Chairman of the Board of Directors of Royal Unibrew A/S and during 2017 he served on the Board of Directors of Bitten og Mads Clausens Fond, the holding vehicle for Danfoss A/S. Mr. Schultz received a master’s degree in economics from the University of Copenhagen.

 

 

 

Qualifications:

 

Mr. Schultz’s leadership positions in various healthcare corporations, including his experience as a chairman and a director of several international corporations and his service as the President and Chief Executive Officer at Teva, provides unique global perspective on the healthcare and pharmaceutical industries.

 

 

 

 

 

LOGO

 

Rosemary A. Crane

Independent Director

 

Committees:

  Human Resources and Compensation (Chair)

  Science and Technology

 

Ms. Crane joined the Board of Directors in September 2015. Ms. Crane served as President and Chief Executive Officer of MELA Sciences, Inc. from 2013 to 2014. Ms. Crane was Head of Commercialization and a partner at Appletree Partners from 2011 to 2013. From 2008 to 2011, she served as President and Chief Executive Officer of Epocrates Inc. Ms. Crane served in various senior executive positions at Johnson & Johnson from 2002 to 2008, including as Group Chairman, OTC & Nutritional Group from 2006 to 2008, as Group Chairman, Consumer, Specialty Pharmaceuticals and Nutritionals from 2004 to 2006, and as Executive Vice President of Global Marketing for the Pharmaceutical Group from 2002 to 2004. Prior to that, she held various positions at Bristol-Myers Squibb from 1982 to 2002, including as President of U.S. Primary Care from 2000 to 2002 and as President of Global Marketing and Consumer Products from 1998 to 2000. Ms. Crane serves on the board of directors of Catalent Pharma Solutions, Inc. since 2018. Ms. Crane has served as Vice Chairman of the Board of Zealand Pharma A/S since 2015 and from 2017 to March 2019 she served on the board of directors of Edge Therapeutics. Ms. Crane received an M.B.A. from Kent State University and a B.A. in communications and English from the State University of New York.

 

 

 

Qualifications:

 

With over 30 years of experience in commercialization and business operations, primarily in the pharmaceutical and healthcare industries, and more than 25 years of therapeutic and consumer drug launch expertise, Ms. Crane provides broad and experienced knowledge of the global pharmaceutical business and industry.

 

 

 

 

 

10     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


Table of Contents

Proposal 1: Election of Directors

 

 

 

 

LOGO

 

Murray A. Goldberg

Independent Director

 

Committees:

  Audit

  Finance and Investment

  Compliance

 

Mr. Goldberg joined the Board of Directors in July 2017. Mr. Goldberg served in various leadership roles at Regeneron Pharmaceuticals from 1995 to 2015, including as Senior Vice President of Administration and Assistant Secretary from 2013 to 2015, as Chief Financial Officer and Senior Vice President, Finance and Administration and Assistant Secretary from 1995 to 2013 and as Treasurer from 1995 to 2012. From 1991 to 1995, Mr. Goldberg served as Chief Financial Officer and Vice President of Finance and Treasurer of PharmaGenics Inc. and as a director of PharmaGenics. From 1987 to 1990, he was a Managing Director at the Chase Manhattan Bank, and from 1973 to 1987, he held various managerial positions in finance and corporate development at American Cyanamid Company. Mr. Goldberg has served as a director of Aerie Pharmaceuticals since 2013 and serves as the chairman of its audit committee. Mr. Goldberg received a Bachelor’s degree in engineering from New York University, a Master’s degree in international economics from the London School of Economics and an M.B.A. from the University of Chicago.

 

 

 

Qualifications:

 

Mr. Goldberg’s many years of experience in leading pharmaceutical companies, together with his knowledge of financial matters, particularly in the pharmaceutical industry, provides the Board with broad expertise in the global pharmaceutical business.

 

 

 

 

 

LOGO

 

Jean-Michel Halfon

Independent Director

 

Committees:

  Compliance (Chair)

  Corporate Governance and Nominating

 

Mr. Halfon joined the Board of Directors in 2014. He currently serves as an independent consultant, providing consulting services to pharmaceutical, distribution, healthcare IT and R&D companies. From 2008 to 2010, Mr. Halfon served as President and General Manager of Emerging Markets at Pfizer Inc., after serving in various senior management positions since 1989. From 1987 to 1989, Mr. Halfon served as Director of Marketing in France for Merck & Co., Inc. Mr. Halfon received a B.S. from Ecole Centrale des Arts et Manufactures and an M.B.A. from Institut Supérieur des Affaires.

 

 

 

Qualifications:

 

Mr. Halfon’s years of experience in senior management at leading pharmaceutical companies, particularly his experience with emerging markets, provides expertise in international pharmaceutical operations and marketing.

 

 

 

 

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    11


Table of Contents

Proposal 1: Election of Directors

 

 

 

 

 

LOGO

 

Gerald M. Lieberman

Independent Director

 

Committees:

  Audit (Chair)

  Human Resources and Compensation

  Finance and Investment

 

Mr. Lieberman joined the Board of Directors in September 2015. Mr. Lieberman is currently a special advisor at Reverence Capital Partners, a private investment firm focused on the middle-market financial services industry. From 2000 to 2009, Mr. Lieberman was an executive at AllianceBernstein L.P., where he served as President and Chief Operating Officer from 2004 to 2009, as Chief Operating Officer from 2003 to 2004 and as Executive Vice President, Finance and Operations from 2000 to 2003. From 1998 to 2000, he served as Senior Vice President, Finance and Administration at Sanford C. Bernstein & Co., Inc., until it was acquired by Alliance Capital in 2000, forming AllianceBernstein L.P. Prior to that, he served in various executive positions at Fidelity Investments and at Citicorp. Prior to joining Citicorp he was a certified public accountant with Arthur Andersen. Mr. Lieberman serves as Chairman of the board of directors of Entera Bio Ltd. He previously served on the board of directors of Forest Laboratories, LLC from 2011 to 2014, Computershare Ltd. from 2010 to 2012 and AllianceBernstein L.P. from 2004 to 2009. Mr. Lieberman received a B.S. Beta Gamma Sigma with honors in business from the University of Connecticut.

 

 

Qualifications:

 

With his many years of experience as an executive in leading financial services companies, including his knowledge and experience in human capital development, succession planning and compensation, Mr. Lieberman provides finance, risk management, operating expertise and human capital expertise for large, complex organizations.

 

 

 

 

LOGO

 

Nechemia (Chemi) J. Peres

Independent Director

 

Committees:

  Corporate Governance and Nominating

  Human Resources and Compensation

 

Mr. Peres joined the Board of Directors in July 2017. Mr. Peres serves as the managing general partner and co-founder of Pitango Venture Capital, Israel’s largest venture capital group that invests across technology sectors from IT to healthcare, with over 220 portfolio companies, since its inception in 1996. Mr. Peres serves on the board of directors of numerous Pitango portfolio companies. Mr. Peres is also the founder of Mofet Israel Technology Fund, one of Israel’s first venture capital funds, since its inception in 1992. Mr. Peres is chairman of the Peres Center for Peace and Innovation. He co-founded and chaired the Israel Venture Association (IATI—Israel Advanced Technology Industries) and he chaired the Israel America Chamber of Commerce from 2008 to 2011. He received a Bachelor of Science in industrial engineering and management and an M.B.A. from Tel Aviv University.

 

 

 

Qualifications:

 

With his pioneering financial and entrepreneurial background, Mr. Peres provides the Board with a forward-thinking view on financial and strategic matters.

 

 

 

 

 

 

12     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


Table of Contents

Proposal 1: Election of Directors

 

 

 

 

LOGO

 

Prof. Ronit Satchi-Fainaro

Independent Director

 

Committees:

  Science and Technology

  Compliance

 

Prof. Satchi-Fainaro joined the Board of Directors in June 2018. Prof. Satchi-Fainaro is a professor at Tel Aviv University since 2015, where she is Head of the Cancer Research and Nanomedicine Laboratory since 2006, Chair of the Department of Physiology and Pharmacology at the Sackler Faculty of Medicine since 2014, Chair of The Kurt and Herman Lion Cathedra in Nanosciences and Nanotechnologies since 2017 and a member of the Preclinical Dean’s Committee since 2015. She served as President of The Israel Controlled Release Society from 2010 to 2014. In 2003, she was appointed Instructor in Surgery at Children’s Hospital in Boston and Harvard Medical School, where, since 2005, she has been a Visiting Professor. Prof. Satchi-Fainaro also serves as a consultant to several biotech and pharmaceutical companies, and is a member of the scientific advisory board of the Blavatnik Center for Drug Discovery, The Israel Cancer Association and Vall d’Hebron University Hospital Foundation—Research Institute. She is also a member of several editorial boards of scientific journals. Prof. Satchi-Fainaro received her B.Pharm. from the Hebrew University in Jerusalem in 1995 and her Ph.D. in Polymer Chemistry and Cancer Nanomedicine from the University of London in 1999. She spent two years as postdoctoral research fellow on biochemistry and protein delivery at Tel Aviv University and two years as postdoctoral research fellow at Harvard University and Children’s Hospital in Boston on vascular and cancer biology.

 

 

 

Qualifications:

 

With extensive experience in clinical medicine and research, Prof. Satchi-Fainaro provides in-depth knowledge of medicine and a scientific perspective.

 

 

Family Relationships

There are no family relationships among any of our executive officers or directors.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    13


Table of Contents

      

 

 

Corporate Governance and Director Compensation

 

Board and Corporate Governance Highlights

Our Board of Directors continually evaluates Teva’s corporate governance policies and practices, focusing on ensuring effective oversight of Teva’s business and management. We have established a strong and effective framework to monitor the risks of our business.

Board and Corporate Governance

 

   

Board refreshment and succession planning (9 directors with less than 4 years on the Board)

 

   

Highly independent Board

 

   

Rigorous annual Board evaluation process

Board Oversight of Risk

 

   

Full Board and individual Committees focus on understanding and assessing Company risks

 

   

Board reviews risk management policies of our operations and business strategy and Board committees review risk in their areas of expertise

 

   

The Audit Committee assists the Board with the oversight of our financial reporting, independent auditors, internal controls and internal audit function

 

   

The Compliance Committee oversees our policies and practices for legal, regulatory and internal compliance (other than regarding financial reporting) and reviews policies and practices that may seriously impact our reputation

 

   

The Finance and Investment Committee reviews our financial risk management policies, including our investment guidelines, financings and foreign exchange and currency hedging, as well as financial risk of certain transactions

 

   

The Human Resources and Compensation Committee (the “Compensation Committee”) oversees compensation, retention, succession and other human resources-related issues and risks

 

   

The Science and Technology Committee oversees risks relating to our intellectual property and research and development activities

 

   

The Corporate Governance and Nominating Committee oversees risks relating to our governance policies and initiatives

Director Alignment with Shareholder Interests

 

   

Directors had excellent meeting attendance, averaging 97% in 2018

 

   

Our Chairman of the Board waived 100% of the cash component of his annual Board membership fee and each of our other directors waived 50% of the cash component of his or her annual Board membership fee in respect of 2018

Shareholder Engagement

 

   

Board supports and participates in shareholder engagement and has made changes to executive compensation in light of shareholder feedback

Social Impact and Responsibility

 

   

Teva is committed to helping patients around the world to access affordable medicines and benefit from innovations to improve their health

 

   

Our Social Impact and Responsibility efforts are focused on contributing to healthy communities and leading a responsible business

 

 

14     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


Table of Contents

Corporate Governance and Director Compensation

 

 

Board Practices

Under our Articles of Association, the Board of Directors must consist of three to 18 directors (including our President and CEO and two statutory independent directors, if required). Our Board of Directors currently consists of 11 persons, including our President and CEO. Subject to election of all of the directors included in Proposal 1, our Board of Directors will consist of 11 persons, including our President and CEO. The Board of Directors has determined that all of the directors that currently serve and that will serve on the Board of Directors following the Annual Meeting are independent, except for Kåre Schultz, our President and CEO.

We currently maintain a policy to have at least three directors qualify as financial and accounting experts under Israeli law. Accordingly, the Board of Directors has determined that Murray A. Goldberg, Gerald M. Lieberman and Roberto A. Mignone are financial and accounting experts under such criteria.

Our directors are generally entitled to review and retain copies of our documentation and examine our assets, as required to perform their duties as directors and to receive assistance, in special cases, from outside experts at our expense.

Board Diversity

 

LOGO    LOGO    LOGO

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    15


Table of Contents

Corporate Governance and Director Compensation

 

 

The chart below summarizes the notable skills, qualifications and experience of each of our directors (in addition to requisite skills and expertise to perform their duties as directors) and highlights the balanced mix of skills, qualifications and experience of the Board as a whole. These are the same attributes that the Board considers as part of its ongoing director succession planning process. This high-level summary is not intended to be an exhaustive list of each director’s skills or contributions to the Board.

 

  SKILLS/QUALIFICATIONS/
  EXPERIENCE

 

 

S.
Barer

 

 

K.
Schultz

 

 

R.
Crane

 

 

A.
Elstein

 

 

M.
Goldberg

 

 

J. M.
Halfon

 

 

G.
Lieberman

 

 

R.
Mignone

 

 

P.
Nisen

 

 

N.
Peres

 

 

R.
Satchi-
Fainaro

 

Accounting and financial reporting experience

 

         

 

   

 

 

 

     

CEO / executive management leadership skills

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Human resource management and executive comp. knowledge and experience

 

     

 

     

 

 

 

       

Pharmaceutical industry

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

   

 

Commercial and operations management

 

   

 

 

 

 

 

   

 

         

Risk oversight and risk management

 

   

 

         

 

 

 

   

 

 

Science / medical
research / innovation

 

 

 

   

 

           

 

   

 

Finance and investment markets

 

         

 

   

 

 

 

   

 

 

Academia/Education

 

                 

 

   

 

Global perspective, international

 

 

 

 

 

 

 

 

 

   

 

     

 

   

ADDITIONAL QUALIFICATIONS AND INFORMATION

 

Audit committee financial expert / financial expert under Israeli law

 

         

 

   

 

 

 

     

Other public boards

 

 

 

 

 

 

 

 

 

 

 

     

 

               

Director Terms and Education. Our directors are generally elected in three classes for terms of approximately three years. Due to the complexity of our businesses and our extensive global activities, we value the insight and familiarity with our operations that a director is able to develop over his or her service on the Board of Directors. Because we believe that extended service on our Board enhances a director’s ability to make significant contributions to Teva, we do not believe that arbitrary term limits on directors’ service are appropriate. At the same time, it is the policy of the Board that directors should not expect to be renominated automatically.

In recent years, we strengthened our Board of Directors with the addition of new highly qualified and talented directors, adding expertise as well as diversity to our Board of Directors. Through these efforts, we have reduced the average tenure of our directors from 5.1 years of service prior the 2017 annual meeting of shareholders to 3.5 years. We also reduced the average age of our directors from 67 prior to the 2017 annual meeting of shareholders to 62. Our Chairman of the Board is independent under NYSE regulations, and 10 out of 11 of our directors are independent under NYSE regulations. Our only non-independent director is our President and CEO, which facilitates collaboration between the Board of Directors and management. We continue to evaluate the size and composition of our Board of Directors to ensure it maintains dynamic, exceptionally qualified members.

 

 

16     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


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Corporate Governance and Director Compensation

 

 

We provide an orientation program and a continuing education process for our directors, which include business and industry briefings, provision of materials, sessions from leading experts and professionals, meetings with key management and visits to Teva facilities. We evaluate and improve our education and orientation programs on an ongoing basis to ensure that our directors have the knowledge and background needed for them to best perform their duties.

Board Meetings. The Board of Directors holds at least six meetings each year to review significant developments affecting Teva and to consider matters requiring approval of the Board, with additional meetings scheduled when important matters require Board of Directors action between scheduled meetings. A majority of the meetings convened, but not fewer than four, must be in Israel. Members of senior management regularly attend Board meetings to report on and discuss their areas of responsibility. Information regarding the number of Board committee meetings and attendance rates for 2018 is presented in the table on page 22.

Executive Sessions of the Board. Our directors meet in executive session (i.e., without the presence of management, including our President and CEO) generally in connection with each regularly scheduled Board meeting and additionally as needed. Executive sessions are chaired by Dr. Barer, the Chairman of the Board.

Annual Meetings. We do not have a formal policy requiring members of the Board to attend our annual meetings, although all directors are strongly encouraged to attend. Six of our directors attended the 2018 annual meeting of shareholders.

Board Leadership. The Board of Directors recognizes that one of its key responsibilities is to establish and evaluate an appropriate leadership structure for the Board of Directors so as to provide effective oversight of management. The Board of Directors has separate roles for the Chief Executive Officer and Chairman of the Board of Directors, with Dr. Sol Barer serving as independent Chairman and Mr. Kåre Schultz as President and CEO. Dr. Barer’s long career as a senior pharmaceutical executive and leadership roles in various biopharmaceutical companies, as well as his extensive scientific expertise and knowledge of the global pharmaceutical business, have made him an invaluable resource to both the Board of Directors and the Chief Executive Officer. The Board of Directors has determined that this leadership structure is appropriate for Teva at this time.

Board of Directors Role in Risk Oversight. Management is responsible for assessing and managing risk, subject to oversight by the Board of Directors. Our annual risk assessment process includes both a top-down review of strategic risks and a bottom-up review of operational risks, which are presented to the Board of Directors. The Board of Directors fulfills its oversight responsibility for risk assessment and management by reviewing risk management policies and the risk appetite of our operations and business strategy and by instructing its committees to assist and advise in their areas of expertise, as described below. Each committee provides regular updates to the full Board regarding its activities.

 

   

The Board oversees our risk management policies and risk appetite, including operational risks and risks relating to our business strategy and transactions. Various committees of the Board assist the Board in this oversight responsibility in their respective areas of expertise.

 

   

The Audit Committee assists the Board with the oversight of our financial reporting, independent auditors, internal controls and internal audit function. It is charged with identifying any flaws in business management and recommending remedies, detecting fraud risks and implementing anti-fraud measures. The Audit Committee further discusses our policies with respect to risk assessment and management with respect to our financial reporting and cyber risks.

 

   

The Compliance Committee oversees our policies and practices for legal, regulatory and internal compliance (other than regarding financial reporting) and reviews policies and practices that may seriously impact our reputation.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    17


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Corporate Governance and Director Compensation

 

 

 

   

The Finance and Investment Committee reviews our financial risk management policies, including our investment guidelines, financings and foreign exchange and currency hedging, as well as financial risk of certain transactions.

 

   

The Compensation Committee oversees compensation, retention, succession and other human resources-related issues and risks.

 

   

The Science and Technology Committee oversees risks relating to our intellectual property and research and development activities.

 

   

The Corporate Governance and Nominating Committee oversees risks relating to our governance policies and initiatives.

Director Service Contracts. Except for equity awards that accelerate upon termination, we do not have any contracts with any of our non-employee directors that provide for benefits upon termination of services. Information regarding director compensation can be found under “Non-Employee Director Compensation” below.

Communications with the Board. Shareholders, employees and other interested parties can contact any director or committee of the Board of Directors by writing to them care of Teva Pharmaceutical Industries Ltd., 5 Basel Street, Petach Tikva, 4951033, Israel, Attn: Company Secretary or Internal Auditor. Comments or complaints relating to our accounting, internal controls or auditing matters may also be referred to members of the Audit Committee, as well as other appropriate Teva bodies. The Board of Directors has adopted a global “whistleblower” policy, which provides employees and others with an anonymous means of communicating with the Audit Committee.

Nominees for Directors. In accordance with the Israeli Companies Law, a nominee for service as a director must submit a declaration to us, prior to his or her election, specifying that he or she has the requisite qualifications to serve as a director and the ability to devote the appropriate time to performing his or her duties as such and that he or she is not restricted from serving as director under the Israeli Companies Law. All of our directors, including those nominated for appointment as directors at the Annual Meeting, have provided such declaration. A director who ceases to meet the statutory requirements to serve as a director must notify us to that effect immediately and his or her service as a director will terminate upon submission of such notice.

Our Board of Directors believes that it should be composed of directors with diverse, complementary backgrounds and that directors should, at a minimum, exhibit proven leadership capabilities and possess experience at a high level of responsibility within their chosen fields. When considering a candidate for director, our Corporate Governance and Nominating Committee considers whether the directors, both individually and collectively, can and do provide the experience, judgment, commitment, skills and expertise appropriate to lead Teva in the context of its industry. In addition, our Corporate Governance and Nominating Committee considers a nominee’s expected contribution to the diversity of skills, background, experiences and perspectives, as well as whether such nominee could provide added value to any of the committees of the Board of Directors, given the then existing composition of the Board of Directors as a whole. Our Corporate Governance and Nominating Committee also provides input and guidance regarding the independence of directors, for formal review and approval by our Board of Directors.

When seeking candidates for directorships, our Corporate Governance and Nominating Committee may solicit suggestions from incumbent directors, management, shareholders and others. Additionally, the Board of Directors has in the past used and may continue to use the services of third party search firms to assist in the identification and analysis of appropriate candidates. After conducting an initial evaluation of a prospective candidate, members of the Board of Directors will interview that candidate if they believe the candidate may be suitable. The Chairman of the Board of Directors may also ask the candidate to meet with certain members of executive management.

 

 

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If our Corporate Governance and Nominating Committee believes a director should be re-approved or a candidate would be a valuable addition to the Board of Directors, it may recommend to the Board of Directors that candidate’s appointment or election, who, in turn, can submit the candidate for consideration by the shareholders.

The Israeli Companies Law provides a process by which one or more shareholders holding 1% or more of the voting rights of Teva may propose the nomination of a candidate to the Board of Directors. See “Shareholder Proposals for the 2019 Annual Meeting and the 2020 Annual Meeting” below.

Non-Employee Director Compensation

As required by the Israeli Companies Law, we have adopted a Compensation Policy for Executive Officers and Directors (the “Compensation Policy”), which is presented for shareholder approval at least once every three years and presented this year for the approval of shareholders under Proposal 3. Pursuant to the Israeli Companies Law and regulations promulgated thereunder, any arrangement between Teva and a director relating to his or her compensation as a director or other position with Teva must generally be consistent with Teva’s Compensation Policy and approved by the Compensation Committee, the Board and by a simple majority of Teva’s shareholders.

As approved at our 2015 and 2017 annual general meetings of shareholders, our non-employee director annual compensation program (applicable to all non-employee directors except for the Chairman of the Board) is comprised of:

 

(i)

an annual Board membership fee of $160,000 paid in cash;

 

(ii)

additional annual cash fees for service on Board committees ($20,000 for service on the Audit Committee, $15,000 for service on the Compensation Committee and $10,000 for service on each other committee);

 

(iii)

an annual equity-based award in the form of restricted share units (“RSUs”) with an approximate aggregate grant date fair value of $130,000 and a three years cliff vesting; and

 

(iv)

an additional annual cash fee for membership on each special or ad-hoc committee, in an amount equal to $20,000.

At our 2017 annual general meeting of shareholders, our shareholders approved an annual fee of $567,000 for our Chairman of the Board. This fee is in addition to the annual equity-based award in the form of RSUs to which our Chairman is entitled with an approximate grant date fair value of $378,000 and a three years cliff vesting, as approved at our 2015 annual general meeting of shareholders. Our Chairman is also entitled to certain office and secretarial and other services and benefits. The Chairman of the Board is not entitled to additional annual cash fees for service on Board Committees.

In light of Teva’s recent challenges, our Chairman of the Board waived 100% of the annual cash fee and each of our other current directors waived 50% of the annual cash Board membership fee in respect of 2018.

Fees for Board and committee service are payable over the period of time during which the individual serves as a non-employee director. In the event that a non-employee director serves as a member of the Board during only part of the year, a pro-rated amount of the annual board membership fee and standing committee fees will be paid. Upon completion of a non-employee director’s service as a director, other than removal pursuant to a shareholder resolution due to a breach of fiduciary duties, any unvested awards granted to such director by virtue of such position and held by such director will immediately become vested.

In addition, Teva reimburses or covers its directors’ expenses (including travel expenses) incurred in connection with meetings of the Board and its committees or performing other services for Teva in their capacity as non-employee directors, in accordance with Israeli law and the Compensation Policy.

 

 

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Non-employee directors, including the Chairman of the Board, are also entitled to certain perquisites having an aggregate monetary value of no more than $10,000 per year per director. In 2018, no perquisites were provided to our non-employee directors. VAT, if applicable, is added to the above director compensation, in accordance with applicable law.

No additional compensation is received for attendance at a Board or committee meeting.

The Compensation Committee and the Board are currently recommending that shareholders approve revisions to the Compensation Policy, including with respect to directors’ compensation, as set forth in Proposal 3, and revised director compensation program as set forth in Proposal 4 and summarized below.

2018 Director Compensation

 

Name

   Fees Earned or
Paid in Cash ($) (1)
   Stock
Awards ($) (2)
   All Other
Compensation ($)
   Total ($)  

 

Dr. Sol J. Barer (3)

       0        377,999        0        377,999  

 

Rosemary A. Crane

       105,001        130,002        0        235,003  

 

Amir Elstein

       116,321        130,002        0        246,323  

 

Murray A. Goldberg

       115,712        130,002        0        245,714  

 

Jean-Michel Halfon

       102,681        130,002        0        232,683  

 

Gerald M. Lieberman

       120,714        130,002        0        250,716  

 

Galia Maor (4)

       47,298        0        0        47,298  

 

Roberto A. Mignone

       111,425        130,002        0        241,427  

 

Dr. Perry D. Nisen

       100,000        130,002        0        230,002  

 

Nechemia (Chemi) J. Peres

       105,532        130,002        0        235,534  

 

Prof. Ronit Satchi-Fainaro (5)

       57,641        130,002        0        187,643  

 

Dan S. Suesskind (4)

       47,380        0        0        47,380  

 

Gabrielle Sulzberger (4)

       43,082        0        0        43,082  
(1)

The amounts shown include the paid cash portion of the annual fee for the Chairman of the Board and Board membership fees and committee service fees for other non-employee directors. Our Chairman of the Board waived 100% of the cash component of his annual fee and each of our other current directors waived 50% of the cash component of his or her annual Board membership fee in respect of 2018.

(2)

In June 2018, each non-employee director serving at that time was granted 6,041 RSUs, and the Chairman of the Board was granted 17,565 RSUs, based on the grant date fair value of a share of $21.52. The amounts shown in the Stock Awards column represent the aggregate grant date fair values of RSUs computed in accordance with FASB Accounting Standards Codification Topic 718 (“Topic 718”). Valuations of RSUs were determined based on the fair market value of a Teva share on the grant date, less the net present value of dividends. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see note 14c. to our consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2018. These RSUs vest three years from the grant date. As of December 31, 2018, the aggregate number of unvested RSUs held by each current non-employee director was as follows: Dr. Sol J. Barer: 45,948; Rosemary A. Crane: 16,777; Amir Elstein: 16,777; Murray A. Goldberg: 13,997; Jean-Michel Halfon: 16,777; Gerald M. Lieberman: 16,777; Roberto A. Mignone: 13,997; Dr. Perry D. Nisen: 13,997; Nechemia J. Peres: 13,997; and Prof. Ronit Satchi-Fainaro: 6,041. Upon completion of a non-employee director’s service as a director, other than removal pursuant to a shareholder resolution due to a breach of fiduciary duties, any unvested awards granted to such director in virtue of such position and held by such director will immediately become vested. In 2018, Galia Maor, Dan S. Suesskind, and Gabrielle Sulzberger received accelerated vesting of equity in connection with the completion of their Board service.

 

 

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(3)

During his service as Chairman of the Board, Dr. Barer is entitled to an annual fee of $567,000 and an annual equity-based award with a total value of $378,000. Dr. Barer waived his annual cash fee as Chairman of the Board payable in 2018.

(4)

Ms. Maor, Mr. Suesskind, and Ms. Sulzbergers’ terms expired in June 2018.

(5)

Prof. Satchi-Fainaro was elected to the Board at the 2018 annual meeting on June 5, 2018.

Mr. Schultz was not and will not be entitled to any compensation in his capacity as a member of the Board or any committee thereof.

We purchase directors’ and officers’ liability insurance for our directors and executive officers, as approved by our shareholders and consistent with the Compensation Policy. In addition, we release our directors from liability and indemnify them to the fullest extent permitted by law and our Articles of Association, and provide them with indemnification and release agreements for this purpose, substantially in the form approved by our shareholders at our 2012 annual meeting.

Any director elected to serve as a member of our Board and all directors currently serving on our Board will be compensated in the manner described in Proposal 4, subject to the approval thereof at the Annual Meeting, and will benefit from the insurance, indemnification and release discussed above.

Proposed Revisions to Non-Employee Director Compensation Program

During 2018, as part of its annual process and in response to shareholder feedback, the Compensation Committee conducted a review and competitive assessment of Teva’s non-employee director compensation program with the assistance of Semler Brossy Consulting Group LLC (“Semler Brossy”), its independent compensation consultant. Following such review, the Compensation Committee recommended to the Board, and the Board approved, a new director compensation program, aimed at aligning director compensation to the median of our peer group, which is being put forth for approval at the Annual Meeting under Proposal 4. Subject to the approval of shareholders at the Annual Meeting, the new director compensation program will become effective as of January 1, 2019 (except for equity-based compensation which will be effective as of the date of the Annual Meeting).

The main changes to the program relative to the prior program are summarized below:

 

   

Change in pay mix: Reduce non-employee director (excluding Chairman of the Board) annual cash fee (excluding committee membership fees) by $30,000 to $130,000 and increase the value of the annual equity-based award by $30,000 to $160,000.

 

   

Reduction in compensation to non-executive Chairman of the Board: Reduce the non-executive Chairman’s annual cash fee by $312,000 to $255,000 (reflecting incremental value of $125,000 above non-employee director annual cash fee) and the annual equity-based award by $93,000 to $285,000 (reflecting incremental value of $125,000 above non-employee director annual equity-based award).

 

   

Committees’ fee: Differentiate between committee membership fees and membership fee for chairperson of a committee to reflect differentiated workload between the chairperson and other members.

 

   

Change in equity vesting schedule: Reduce vesting for all non-employee director grants from three years to one year to align with typical market practice that provides shorter vesting periods for non-employee directors.

 

   

Implementation of stock ownership guidelines: Establish director stock ownership guidelines of five times the annual cash fee that must be achieved within six years of appointment to the Board.

For a comprehensive review of the new program, see Proposal 4.

 

 

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Committees of the Board

Our Articles of Association provide that the Board of Directors may delegate its powers to one or more committees as it deems appropriate to the extent such delegation is permitted under the Israeli Companies Law. The Board of Directors has appointed the standing committees listed below, as well as ad-hoc committees appointed from time to time for specific purposes determined by the Board.

We have adopted charters for all of our standing committees, formalizing the committees’ procedures and duties. These committee charters are available on our website at www.tevapharm.com.

Current Committee Composition and Board and Committee Attendance

 

Name

 

 

Audit

 

 

Human
Resources

and
Compensation

 

 

Corporate
Governance
and
Nominating

 

 

Finance

and
Investment

 

 

Compliance

 

 

Science

and
Technology

 

Rosemary A. Crane

 

    Chair

 

       

 

Amir Elstein

 

 

 

    Chair

 

 

 

   

Murray A. Goldberg

 

 

 

     

 

 

 

 

Jean-Michel Halfon

 

     

 

    Chair

 

 

Roberto A. Mignone

 

 

 

      Chair

 

   

 

Dr. Perry D. Nisen

 

         

 

  Chair

 

Nechemia (Chemi) J. Peres

 

   

 

 

 

     

Gerald M. Lieberman

 

  Chair

 

 

 

   

 

   

Prof. Ronit Satchi-Fainaro

 

                 

 

 

 

No. of meetings in 2018

 

  8

 

  6

 

  5

 

  5

 

  4

 

  6

 

Average attendance rate

 

  98%

 

  100%

 

  95%

 

  100%

 

  100%

 

  100%

 

In 2018, our Board of Directors met 10 times, with an average attendance rate of 97%. In 2018, each of our current directors attended at least 90% of the meetings of the Board and Board committees on which he or she served. In 2018, our Board of Directors and various Board committees met frequently to review and approve the important strategic activities throughout the year.

Audit Committee

The Israeli Companies Law mandates publicly held Israeli companies to appoint an audit committee. As a NYSE-listed company, Teva’s Audit Committee must be comprised solely of independent directors, as defined by SEC and NYSE regulations.

The responsibilities of our Audit Committee include, among others: (a) identifying flaws in the management of our business and making recommendations to the Board of Directors as to how to correct them and providing for arrangements regarding employee complaints with respect thereto; (b) making determinations and considering providing approvals concerning certain related party transactions and certain actions involving conflicts of interest; (c) reviewing the internal auditor’s performance and approving the internal audit work program and examining our internal control structure and processes; (d) examining the independent auditor’s scope of work and fees; and (e) providing for arrangements regarding employee complaints regarding questionable accounting or auditing matters and monitoring compliance with and investigating alleged violations and enforcing provisions of Teva’s Code of Conduct. Furthermore, the Audit Committee discusses the financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “MD&A”) and presents to the Board of Directors its recommendations with respect to the proposed financial statements and MD&A.

 

 

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In accordance with the Sarbanes-Oxley Act and NYSE requirements, the Audit Committee is directly responsible for the appointment, compensation and oversight of the work of our independent auditors. In addition, the Audit Committee is responsible for assisting the Board of Directors in monitoring our financial statements, the effectiveness of our internal controls and our compliance with legal and regulatory requirements. The Audit Committee also discusses our policies with respect to risk assessment and risk management with respect to financial reporting and risks that may be material to us and major legislative and regulatory developments that could materially impact Teva’s contingent liabilities and risks.

The Audit Committee charter sets forth the scope of the committee’s responsibilities, including its structure, processes and membership requirements; the committee’s purpose; its specific responsibilities and authority with respect to, among others, registered public accounting firms; complaints relating to accounting, internal accounting controls or auditing matters; and its authority to engage advisors as determined by the Audit Committee.

The Audit Committee also reviews and receives briefings concerning Teva’s information security and technology risks, including cybersecurity, and has been briefed on Teva’s information security and risk management programs. Teva’s information security office leads our cybersecurity risk management program.

All of the Audit Committee members have been determined to be independent as defined by SEC and NYSE regulations.

The Board of Directors has determined that, of the directors on this committee, Gerald M. Lieberman (chair), Murray A. Goldberg and Roberto A. Mignone are “audit committee financial experts” as defined by applicable SEC regulations.

Human Resources and Compensation Committee

Publicly held Israeli companies are required to appoint a compensation committee. Our Compensation Committee includes only independent directors, as defined by SEC and NYSE regulations.

The Compensation Committee is responsible for establishing annual and long-term performance goals and objectives for our executive officers, as well as reviewing our compensation philosophy and policies (including our Compensation Policy).

The Compensation Committee is responsible for reviewing plans for the succession of our chief executive officer and other senior members of executive management.

The Compensation Committee also evaluates the performance of our chief executive officer and other executive officers, makes recommendations to the Board of Directors regarding the compensation of our executive officers and directors, reviews any organizational restructuring pertaining to the roles, responsibilities and selection of executive officers and oversees our labor practices.

Corporate Governance and Nominating Committee

The role of our Corporate Governance and Nominating Committee is to (i) identify individuals who are qualified to become directors; (ii) recommend to the Board of Directors director nominees for each annual meeting of shareholders; and (iii) assist the Board of Directors in establishing and reviewing Teva’s statement of corporate governance principles and promoting good corporate governance in Teva.

All of the committee members must be, and have been determined to be, independent as defined by NYSE regulations.

 

 

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Finance and Investment Committee

The role of our Finance and Investment Committee is to assist the Board of Directors in fulfilling its responsibilities with respect to our financial and investment strategies and policies, including determining policies on these matters and monitoring implementation. It is also authorized to approve certain financial transactions (such as material loans and other financing arrangements), review our financial risk management policies and evaluate the execution, financial results and integration of Teva’s completed acquisitions, as well as various other finance-related matters, including our global tax structure and allocation policies. According to the committee’s charter, at least one of the committee’s members must be qualified as a financial and accounting expert under SEC regulations and/or the Israeli Companies Law.

The Board of Directors has determined that, of the directors on this committee, Gerald M. Lieberman, Murray A. Goldberg and Roberto A. Mignone are financial and accounting experts under Israeli law.

Compliance Committee

The role of our Compliance Committee is to oversee our: (i) policies and practices for complying with laws, regulations and internal procedures; (ii) policies and practices regarding issues that have the potential to seriously impact our business and reputation; (iii) global public policy positions; and (iv) social responsibility and community outreach.

A majority of committee members must be determined to be independent as defined by NYSE regulations. The chairperson of the Audit Committee shall be invited by the committee chairperson to participate in the Compliance Committee, as deemed relevant to the committee’s agenda.

Science and Technology Committee

The Science and Technology Committee oversees our overall strategic direction and investment in research and development and technological and scientific initiatives. As part of this responsibility, it reviews scientific and R&D strategy and priorities, scientific aspects of business development activities and technological trends. It assists the Board of Directors in risk management oversight relating to R&D and our intellectual property, advises on our intellectual property strategy, reviews new technology in which Teva is, or is considering, investing and reviews the efficacy and safety profile of new pharmaceuticals.

All of the committee members must be determined to have scientific, medical or other related expertise. A majority of committee members must be determined to be independent as defined by NYSE regulations.

Code of Business Conduct

Teva has adopted a code of business conduct applicable to its directors, executive officers, and all other employees. A copy of the code is available to every Teva employee on Teva’s internet site, upon request to its human resources department, and to investors and others on Teva’s website at www.tevapharm.com or by contacting Teva’s investor relations department, legal department or the internal auditor. If we make any amendment or grant any waiver to this code that applies to our chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions, and that relates to an element of the SEC’s “code of ethics” definition, then we will disclose the nature of the amendment or waiver on Teva’s website. The Board of Directors has approved a whistleblower policy which functions in coordination with Teva’s code of business conduct and provides an anonymous means for employees and others to communicate with various bodies of Teva, including the Audit Committee. Teva has also implemented a training program for new and existing employees concerning the code of business conduct and whistleblower policy.

 

 

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Principles of Corporate Governance

We have adopted a set of corporate governance principles, which is available on our website at www.tevapharm.com. We place great emphasis on maintaining high standards of corporate governance and continuously evaluate and seek to improve our governance standards. These efforts are expressed in our corporate governance principles, our committee charters and the policies of our Board of Directors. Teva is in compliance with all corporate governance standards currently applicable to Teva under Israeli and U.S. laws, SEC regulations and NYSE listing standards.

Insider Trading Policy

Our directors, executive officers and employees, as well as their immediate family members, persons living in their home and entities controlled by any of the foregoing persons are subject to Teva’s insider trading policy (the “Policy”). The Policy prohibits insider trading and certain speculative transactions (including short sales, buying put and selling call options and other hedging or derivative transactions in Teva’s securities), and establishes a regular blackout period schedule during which directors, executive officers and certain employees may not trade in Teva’s securities. In addition, the Policy establishes pre-clearance procedures that directors and executive officers must observe prior to effecting any transaction in Teva’s securities. The Policy applies not only to Teva’s ADSs and ordinary shares, but also to its debt securities and other securities for which Teva securities serve as underlying assets.

Board Evaluation Process

Our Board of Directors is committed to continuous improvement and recognizes the fundamental role a robust Board of Directors and committee evaluation process play in ensuring that our Board of Directors maintains optimal composition and functions effectively.

In the annual self-evaluation process, the members of the Board of Directors conduct a confidential oral assessment of the performance, risk oversight and composition of the Board and any committees of which he or she is a member with the Company Secretary. As part of the evaluation process, the Board of Directors, in conjunction with the Corporate Governance and Nominating Committee, reviews the effectiveness and overall composition, including director tenure, board leadership structure, diversity and skill sets, of the Board of Directors to ensure the Board of Directors serves the best interests of shareholders and positions the company for future success. The results of the oral assessments are then summarized and communicated back to each committee, committee chair and the entire Board of Directors. After the evaluations, each committee, committee chair and the entire Board of Directors and management work to improve upon any issues presented during the evaluation process and to identify opportunities that may lead to further improvement. The Corporate Governance and Nominating Committee also uses this process to assess and determine the characteristics and skills required of prospective candidates for election to the Board of Directors.

 

 

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Shareholder Engagement

Following our 2018 annual meeting of shareholders, our Board of Directors initiated a shareholder outreach effort, led by the Chairman of the Board and the Chair of the Compensation Committee, to deepen relationships with our shareholders to help inform discussions on a number of issues, including corporate governance and executive compensation, and to solicit important shareholder feedback. Beginning in late 2018 and continuing through early 2019, we engaged in a productive shareholder outreach effort to better understand our shareholders’ concerns. During this time, we contacted shareholders representing approximately 50% of our outstanding shares to engage in dialogue regarding our financial performance, corporate governance and executive compensation program. Our Chairman of the Board and the Chair of the Compensation Committee participated in discussions with shareholders representing approximately 37% of our outstanding shares, including several shareholders that voted “against” the 2018 say-on-pay proposal. We also engaged with the research teams at proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co.

In addition to the compensation-related changes made in response to shareholder engagement described under “Executive Compensation—Compensation Discussion & Analysis—Shareholder Engagement,” in response to feedback from our shareholders that opioid-related risks deserve greater attention from the healthcare industry, we are committing to prepare and publicly release by November 15, 2019 a report related to opioid-related governance measures taken by the Company.

For more information regarding our shareholder engagement program, please see “Executive Compensation—Compensation Discussion & Analysis—Shareholder Engagement.”

Social Impact and Responsibility

Teva is committed to helping patients around the world to access affordable medicines and benefit from innovations to improve their health. We have a rich history of providing innovative, high-quality generic and specialty drugs, and health solutions to patients around the world. At Teva, Social Impact means aligning our corporate resources and expertise with relevant areas of social need. We are dedicated to promoting health and increasing access to treatment for patients. Teva has participated in the United Nations Global Compact since 2010, which encourages companies around the world to adhere to principles of responsible business.

We remain actively engaged with our shareholders and other key stakeholders on our environmental, social and governance performance relative to our financial results. Our Board of Directors remains actively engaged on these issues with oversight of our Social Impact and Responsibility initiatives by our Compliance Committee.

Our Social Impact and Responsibility efforts are focused in the following areas, among others:

Contributing to Healthy Communities. For Teva, a healthy community is one in which individuals have access to resources and conditions that enable them to live their healthiest lives. Cultivating healthier communities allows us to support people around the world on their individual paths toward wellness, thereby creating value for society and our business.

Leading a Responsible Business. At Teva, a responsible business is one that enacts and enforces strong practices and controls to ensure all activities are carried out reliably, ethically, and transparently. As a global company that influences the health and safety of millions of people, we recognize our responsibility to conduct our business with integrity. Operating in this manner helps ensure our long-term sustainability, allowing us to focus on what matters most—improving health.

Reporting and Disclosures. Teva reports its Social Impact and Responsibility efforts using the Global Reporting Initiative (GRI) Sustainability Reporting Standards and publishes results in our annual Social Impact reports.

 

 

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For more information about Teva’s Social Impact and Responsibility practices, including our most recent annual Social Impact report as well as position and policy statements on issues relating to environmental, social and governance issues, please see Teva’s website at https://www.tevapharm.com/corporate_responsibility/. Information on our website is not part of the proxy materials and is not incorporated into the proxy statement by reference.

Executive Officers

The following table sets forth information regarding our executive officers as of April 16, 2019:

 

Name

 

  

Age

 

  

Executive
Officer Since

 

  

Position

 

Kåre Schultz

 

      

 

57

 

 

      

 

2017

 

 

  

President and Chief Executive Officer

 

Iris Beck-Codner

 

      

 

53

 

 

      

 

2014

 

 

  

Executive Vice President, Global Brand and Communications

 

Richard Daniell

 

      

 

52

 

 

      

 

2017

 

 

  

Executive Vice President, European Commercial

 

Sven Dethlefs

 

      

 

50

 

 

      

 

2017

 

 

  

Executive Vice President, Global Marketing & Portfolio

 

Dr. Hafrun Fridriksdottir

 

      

 

57

 

 

      

 

2017

 

 

  

Executive Vice President, Global R&D

 

Michael McClellan

 

      

 

49

 

 

      

 

2017

 

 

  

Executive Vice President, Chief Financial Officer

 

Gianfranco Nazzi

 

      

 

50

 

 

      

 

2017

 

 

  

Executive Vice President, International Markets Commercial

 

Dr. Carlo de Notaristefani

 

      

 

62

 

 

      

 

2012

 

 

  

Executive Vice President, Global Operations

 

Brendan O’Grady

 

      

 

52

 

 

      

 

2017

 

 

  

Executive Vice President, North America Commercial

 

Mark Sabag

 

      

 

49

 

 

      

 

2013

 

 

  

Executive Vice President, Global Human Resources

 

David M. Stark

 

      

 

50

 

 

      

 

2016

 

 

  

Executive Vice President, Chief Legal Officer

 

 

  Kåre Schultz

 

  President and Chief

  Executive Officer

   The biography of Kåre Schultz, our President and Chief Executive Officer, and one of our directors, appears under “—Directors” above.

  Iris Beck-Codner

 

  Executive Vice President,

  Global Brand &

  Communications

   Ms. Beck-Codner became Executive Vice President, Global Brand & Communications in November 2017. From 2014 to 2017, Ms. Beck-Codner served as Group Executive Vice President, Corporate Marketing and Communication. From 2013 to 2014, she served as Senior Vice President, Chief Communications Officer. From 2009 to 2012, she served as Group CEO of McCann Erickson Israel, IPG and from 2002 to 2008, as Vice President Marketing & Content at Partner Communications Company Ltd. From 1999 to 2000, she served as General Manager of Lever Israel, a wholly-owned subsidiary of Unilever Israel. In 2018, Ms. Beck-Codner joined the board of directors of Adika Style Ltd., a subsidiary of the Golf & Co. Group. Ms. Beck-Codner received a B.A. in economic sciences from Haifa University and an M.B.A. with distinction from Bar-Ilan University.

 

 

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Corporate Governance and Director Compensation

 

 

  Richard Daniell

 

  Executive Vice President,

  European Commercial

   Mr. Daniell was appointed Executive Vice President, European Commercial in November 2017. From December 2016 to November 2017, he served as President and CEO, Teva Europe Generics. From 2015 to 2016, he served as Chief Integration Officer, leading the integration of the Actavis Generics business into Teva. From 2015 to 2016, he served as Chief Operating Officer, Growth Markets. From 2011 to 2015 he served as Cluster General Manager, United Kingdom and Ireland. Mr. Daniell received a B.Sc. degree in chemistry from the University of Auckland, New Zealand.

  Sven Dethlefs

 

  Executive Vice President,

  Global Marketing &

  Portfolio

   Mr. Dethlefs was appointed Executive Vice President, Global Marketing & Portfolio in November 2017. From 2016 to 2017, he served as Global Head of Respiratory Medicines, Global Specialty Medicines. From 2013 to 2016, he served as Chief Operating Officer, Teva Global Operations. Mr. Dethlefs joined Teva as General Manager, Teva Germany in 2008. Prior to joining Teva, he served for over eleven years as a partner at McKinsey & Company. Mr. Dethlefs received his Ph.D. in biochemistry from the FU Berlin/Pasteur Institute Paris.

  Dr. Hafrun Fridriksdottir

 

  Executive Vice President,

  Global R&D

   Dr. Fridriksdottir became Executive Vice President, Global R&D in November 2017. From February 2017 to November 2017, she served as Executive Vice President, President of Global Generics R&D, after serving as Senior Vice President and President of Global Generics R&D from 2016. Prior to joining Teva, from 2015 to 2016, Dr. Fridriksdottir served as Senior Vice President and President of Global Generics R&D in Allergan plc. From 2002 to 2015, she held positions of increasing responsibility within the Actavis Group, including Senior Vice President, R&D. From 1997 to 2002, Dr. Fridriksdottir served as Divisional Manager of Development at Omega Pharma, until its merger with Actavis. Dr. Fridriksdottir received an MS degree in pharmacy and a Ph.D. in physical pharmacy from the University of Iceland.

  Michael McClellan

 

  Executive Vice President,

  Chief Financial Officer

   Mr. McClellan was appointed Executive Vice President, Chief Financial Officer in November 2017. He served as Interim Group Chief Financial Officer from July 2017 to November 2017. From 2015 to November 2017, he served as Senior Vice President and CFO, Global Specialty Medicines. Prior to joining Teva, Mr. McClellan was the U.S. CFO at Sanofi, where his career spanned nearly 20 years in roles of increased responsibility in global finance and healthcare. Mr. McClellan received his BSBA, accounting and economics from the University of Missouri Trulaske College of Business.

  Gianfranco Nazzi

 

  Executive Vice President,

  International Markets

  Commercial

   Mr. Nazzi was appointed Executive Vice President, International Markets Commercial in November 2017. From March 2017 to November 2017, he served as President and CEO of Growth Markets, Global Generic Medicines Group. Mr. Nazzi joined Teva as Senior Vice President, Specialty Medicines Europe in 2014. Prior to joining Teva, he served seven years at AstraZeneca in various senior roles, including Sales and Marketing Vice President Europe, Global Vice President Respiratory, General Manager of the Balkans and Vice President Primary Care in Italy. Prior to that, he served for two years as BU Director Metabolic & Cardiovascular at GlaxoSmithKline and five years in various sales and marketing roles at Eli Lilly and Company in both Italy and the United States. Mr. Nazzi received his BA degree in economics from the University of Udine, and his master’s degree in management studies from SDA Bocconi.

 

 

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Corporate Governance and Director Compensation

 

 

  Dr. Carlo de   Notaristefani

 

  Executive Vice President,

  Global Operations

   Dr. de Notaristefani became Executive Vice President, Global Operations in November 2017. From 2012 to 2017, he served as President and Chief Executive Officer, Global Operations. Prior to joining Teva, from 2004 to 2011, Dr. de Notaristefani was a member of the senior management team at Bristol-Myers Squibb, where he served as President Technical Operations and Global Support Functions, with responsibility for global supply chain operations, quality and compliance, procurement and information technology. Before joining Bristol-Myers Squibb, Dr. de Notaristefani held several senior positions of increasing responsibility in the areas of global operations and supply chain management with Aventis, Hoechst Marion Roussell and Marion Merrell Dow. Dr. de Notaristefani holds a doctoral degree in chemical engineering from the University of Naples.

  Brendan O’Grady

 

  Executive Vice President,

  North America

  Commercial

   Mr. O’Grady was appointed Executive Vice President, North America Commercial in November 2017. From 2016 until November 2017, he served as Chief Commercial Officer, Global Specialty Medicines and served as interim head of Teva’s European Specialty business. Prior to that, he held various senior roles since joining Teva in 2011 as Regional Account Manager, and from 2015 to 2016, he served as President and CEO, Teva North America Generics. Prior to joining Teva, Mr. O’Grady spent ten years with Sanofi predecessor companies in a variety of commercial and medical affairs roles that began in field sales. Since 2017, Mr. O’Grady serves on the science and technology committee and on the policy committee of the Association for Accessible Medicines. He received his B.S. from Geneseo State University, NY in management science/marketing and holds an M.B.A. from Baker University in Baldwin City, Kansas.

  Mark Sabag

 

  Executive Vice President,

  Global Human Resources

   Mr. Sabag became Executive Vice President, Global Human Resources in November 2017. From 2013 to November 2017, he served as Group Executive Vice President, Human Resources. From 2012 to 2013, Mr. Sabag served as Global Deputy Vice President, Human Resources. From 2010 to 2012, he served as Vice President, Human Resources for Teva’s International Group. From 2006 to 2010, he served as Vice President, Human Resources International Group and Corporate Human Capital. Prior to joining Teva, Mr. Sabag held senior human resources roles with Intel Corporation. Mr. Sabag received a B.A. in economics and business management from Haifa University.

  David M. Stark

 

  Executive Vice President,

  Chief Legal Officer

   Mr. Stark became Executive Vice President, Chief Legal Officer in November 2017. From November 2016 to November 2017, he served as Group Executive Vice President, Chief Legal Officer. From 2014 to 2015, Mr. Stark was Senior Vice President and General Counsel, Global Specialty Medicines. Since joining Teva in 2002, Mr. Stark served in a series of roles with increasing responsibilities in Teva North America and Teva Americas, including as Senior Director, Deputy General Counsel, and Vice President and General Counsel. Prior to joining Teva, Mr. Stark was an associate attorney in the litigation departments at Willkie Farr & Gallagher LLP between 1998 and 2002, Chadbourne & Parke between 1997 and 1998 and Haight, Gardner, Poor & Havens between 1994 and 1997. Mr. Stark received a J.D. from New York University School of Law and a B.A. in political science from Northeastern University, summa cum laude.

 

 

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Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

This compensation discussion and analysis (“CD&A”) describes the philosophy, objectives, process, components and additional aspects of our 2018 executive compensation program. This CD&A is intended to be read in conjunction with the tables that immediately follow this section, which provide further historical compensation information for the following named executive officers (“NEOs”):

 

 

NEOs

 

 

Kåre Schultz

 

  

 

President and Chief Executive Officer (“CEO”)

 

 

Michael McClellan

 

  

 

Executive Vice President, Chief Financial Officer (“CFO”)

 

 

Dr. Carlo de Notaristefani

 

  

Executive Vice President, Global Operations

 

 

Dr. Hafrun Fridriksdottir

 

  

 

Executive Vice President, Global R&D

 

 

Mark Sabag

 

  

 

Executive Vice President, Global Human Resources

 

Quick CD&A Reference Guide

 

 

Executive Summary

 

  

 

Section I    

 

 

Compensation Governance

 

  

 

Section II    

 

 

Compensation Philosophy and Objectives

 

  

 

Section III    

 

 

Compensation Determination Process

 

  

 

Section IV    

 

 

Components of Our Compensation Program

 

  

 

Section V    

 

 

Additional Compensation Policies and Practices

 

  

 

Section VI    

 

I. Executive Summary

Compensation Objectives

In order to accomplish our key corporate objectives, we must attract, motivate and retain highly skilled and experienced people to execute our corporate strategy and lead our team. To that end, our executive officer compensation program is designed to:

 

  (i)

link pay to performance;

 

  (ii)

align executive officers’ interests with those of Teva and its shareholders over the long term;

 

  (iii)

encourage balanced risk management; and

 

  (iv)

provide competitive compensation packages that motivate our executive officers.

2018 Select Business Highlights

In 2017, we faced significant challenges in both our generic medicines business and our specialty medicines business. In order to deal with these challenges and as part of our transformation, the Board conducted a global search process for our next CEO and in September 2017, appointed Mr. Schultz to the position, a leader with extensive global pharmaceutical experience and a strong track record in corporate

 

 

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turnarounds, driving growth and leading international expansion. In 2018, we made significant progress on our strategic plan to reduce costs and return to growth, as detailed below.

 

 

 

Strategic Developments

 

 

   

Following the changes to our leadership team announced in November 2017, we deployed a new, unified and simplified organizational structure.

 

   

After announcing our comprehensive restructuring plan in December 2017, we initiated its execution, which resulted in a significant cost base reduction of $2.2 billion to date, and we are on track to achieve a total reduction of $3.0 billion by the end of 2019.

 

   

Since the announcement of our restructuring plan, we have reduced our global headcount by approximately 10,300 full-time-equivalent employees and reduced the number of manufacturing facilities by 7 in 2018 to 73; 11 more sites are planned for closure or divestment in 2019.

 

   

We have reduced our net debt by 14% to $27.1 billion at the end of 2018 compared to the end of 2017.

 

   

In September 2018, we launched AJOVY® for the preventive treatment of migraine in adults in the U.S.

 

   

Sales of AUSTEDO® for Huntington’s disease and other movement disorders continues to grow rapidly, with $204 million in revenues in the U.S. in 2018.

 

   

COPAXONE® maintained its market share in the U.S., though revenues decreased in 2018, and continues to be one of the leading multiple sclerosis therapies in the U.S., despite increasing generic competition.

 

   

In July 2018, we dissolved our PGT Healthcare joint venture with The Procter & Gamble Company. We will continue to maintain our over-the-counter business on an independent basis.

 

   

At the end of 2018, our revenues from generic medicines in North America were stabilizing, after a long period of significant deterioration.

 

 

Financial Results

 

 

   

Our revenues in 2018 were $18,854 million, a decrease of 16% in both U.S. dollar and local currency terms compared to 2017, which was in line with our financial guidance. The decline in revenues was mainly due to generic competition to COPAXONE, a decline in revenues in our U.S. generics business and loss of revenues following the divestment of certain products and discontinuation of certain activities.

 

   

Our North America segment generated revenues of $9,297 million and profit of $2,837 million in 2018. Revenues decreased by 23%, mainly due to a decline in revenues of COPAXONE, our U.S. generics business, ProAir® and QVAR®, as well as the loss of revenues from the sale of our women’s health business. The decline in revenues was partially offset by higher revenues from AUSTEDO and our Anda distribution business. Profit decreased by 39%, mainly due to lower revenues from COPAXONE and a decline in sales of generic and other specialty products. The decline in profit was partially offset by cost reductions and efficiency measures achieved through our restructuring plan.

 

   

Our Europe segment generated revenues of $5,186 million and profit of $1,273 million in 2018. Revenues decreased by 5%, or 9% in local currency terms, mainly due to the loss of revenues from the closure of our distribution business in Hungary, the sale of our women’s health business and a decline in COPAXONE revenues. The decline in revenues was partially offset by new generic product launches. Profit increased by 24%, mainly due to cost reductions and efficiency measures as part of the restructuring plan.

 

 

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Our International Markets segment generated revenues of $3,005 million and profit of $498 million in 2018. Revenues decreased by 11%, or 9% in local currency terms, mainly due to lower sales in Russia and Japan, the effect of the deconsolidation of our subsidiaries in Venezuela and loss of revenues from the sale of our women’s health business. Profit increased by 17%, mainly due to cost reductions and efficiency measures as part of the restructuring plan.

 

   

Operating loss was $1,637 million in 2018, compared to $17,484 million in 2017, mainly due to higher impairment charges recorded in 2017.

 

   

As of December 31, 2018, our debt was $28,916 million, compared to $32,475 million at December 31, 2017. This decrease was mainly due to senior notes and term loans repaid at maturity or prepaid with cash generated during the year and cash proceeds from sales of assets.

 

   

GAAP Loss Per Share was $2.35 in 2018, compared to GAAP Loss Per Share of $16.26 in 2017; Non-GAAP Earnings Per Share (“EPS”) were $2.92 in 2018, compared to non-GAAP EPS of $4.01 in 2017. Please see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Non-GAAP Income Data” of our Annual Report on Form 10-K for the year ended December 31, 2018 for reconciliation of non-GAAP Earnings Per Share.

 

   

Cash flow generated from operating activities was $2,446 million in 2018, an increase of $221 million, or 10%, compared to 2017. This increase was mainly due to the working capital adjustment with Allergan and the Rimsa settlement in 2018, partially offset by lower profit in our North America segment.

Key Aspects of 2018 Executive Compensation

2018 CEO Compensation—Unchanged, Majority Performance-Based: There was no increase to the target total direct compensation of the CEO as compared to 2017. During 2018, the CEO continued to have the same base salary, target annual cash incentive opportunity and target value of the long-term equity grant. Half of such long-term equity grant was provided in the form of performance share units (“PSUs”) that will vest at the end of a three-year performance period, and the remainder was split between stock options and restricted share units (“RSUs”). During our annual competitive assessment process, we confirmed that CEO annual target total direct compensation is reasonable, closely aligned with levels at peer companies, and within the limits of the Compensation Policy. Separately, as previously disclosed with respect to the hiring of Mr. Schultz in 2017, and in accordance with his employment agreement, Mr. Schultz received a sign-on cash payment of $20 million as part of the package to induce him to join the Company during an extremely challenging time and due to our firm belief that his skills and experiences were key to Teva’s success. Because this one-time cash award was paid in 2018, it is disclosed in our 2018 Summary Compensation Table. See “—V. Components of Our Compensation Program—Leadership Transitions” for a detailed description of Mr. Schultz’s employment terms.

2018 CEO Target Total Direct Compensation(*)

 

Executive

  Principal
Position
  Base Salary   Target
Annual
Incentive
  2018 PSUs   2018 Stock
Options
  2018 RSUs   Total

Kåre Schultz

  CEO   $2,000,000   $2,800,000   $2,999,992   $1,500,019   $1,499,985   $10,799,996

% of Total

    18%   26%   28%   14%   14%   100%

% of Long-Term

              50%   25%   25%    

 

(*)

Excludes $20 million sign-on cash amount under the employment agreement that was paid in 2018.

2018 CEO Long-Term Incentives—Increased Allocation to Performance-Based Equity: The Compensation Committee and the Board raised the portion of equity granted to the CEO that is subject to performance-based vesting conditions to 50% by allocating half of the value of the CEO’s target equity

 

 

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grant to PSUs and 25% to each of RSUs and stock options. In 2019, the Compensation Committee and the Board similarly raised the NEOs’ allocation to PSUs to 50%.

2018 Annual Incentive Plan—Increased Weighting of Company-Wide Financial Measures and Simplified: The Compensation Committee and the Board simplified the annual cash incentive goals by increasing the weight allocated to Company-wide financial measures to 75% in 2018, up from 42% for executive officers and 56% for the CEO in 2017, in order to focus executive officers on what they believe are the most critical strategic priorities of servicing debt, controlling expenses and improving profitability.

 

Category

 

  

Weighting

 

   

Additional Weighting

 

Company Financial

     75   50% Non-GAAP EPS

 

     25% Free Cash Flow

 

Individual

     25    

2018 Performance Achievement and Incentive Compensation Payout: In 2017, no annual cash incentive payouts were made due to our financial results that were well below the aggressive targets that we had established. At the beginning of 2018, we established annual cash incentive goals aligned with the high end of our 2018 outlook as communicated to investors in February. These goals were again deemed rigorous and challenging, particularly given the significant headwinds we were facing. Key assumptions were made in constructing our 2018 outlook including a decline in total revenue compared to 2017 mainly because of an:

 

  n  

Anticipated decline in COPAXONE revenue of over 50% from $3.8 billion in 2017 to $1.8 billion in 2018 due to expected increase in generic competition;

 

  n  

Anticipated decline in our U.S. generics business revenue of approximately 20% compared to 2017 due to intensifying competition and pricing pressure; and

 

  n  

Anticipated decline of approximately $1.0 billion in revenue due to divestitures, deconsolidation of Venezuela and assets sold.

In spite of the challenges we faced, we made exceptional progress, mainly because we achieved:

 

  n  

Actual 2018 COPAXONE revenue of $2.4 billion, reflecting a decrease of only 38% from 2017 compared to an anticipated decrease of over 50%, mainly due to our ability to maintain share in the U.S. and developing market conditions; and

 

  n  

Actual 2018 spend base reduction of $2.2 billion, which was ahead of plan on the total $3.0 billion reduction targeted by the end of 2019.

We outperformed the high end of our 2018 outlook as communicated to investors in February for non-GAAP EPS and Free Cash Flow mainly due to the above. The Compensation Committee and the Board determined that the Company’s achievement was 117% of our 2018 non-GAAP EPS target goal and 132% of our 2018 Free Cash Flow target goal, although the latter was capped at 120% for annual incentive compensation purposes. These results, together with strong CEO and other NEO individual performance achievement, resulted in 2018 annual cash incentive payouts of 135% of target for the CEO and between 168% and 180% of target for the other NEOs, reflecting their superior performance in spite of the challenges we faced.

In addition, the Compensation Committee and the Board approved the achievement relative to target performance goals for the PSUs granted in 2016 with a performance period of 2016-2018. The Compensation Committee and the Board determined a combined 3-year performance achievement of

 

 

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97.75% of our Net Revenue target goals and 97.26% of our non-GAAP Operating Profit target goals. The average of these percentages, 97.51%, resulted in an earning percentage of 75.09% of the target number of units.

Realizable Pay Demonstrates Pay for Performance Alignment: Realizable pay reflects the actual value of annual incentives and equity awards received or to be received by our NEOs, and fluctuates with increases or decreases in share price. For this reason, contrasting target pay with realizable pay provides a meaningful demonstration of pay for performance alignment.

When the Company does not meet performance targets and/or the share price decreases, an executive’s realizable pay is affected. The following charts demonstrate the relationship between the target and realizable values, in each of the past three years, of our NEOs’: (1) annual incentive, and (2) annual equity grants following the conclusion of the applicable three-year performance period. The equity grants to the NEOs in 2014, 2015 and 2016 included PSUs and stock options. The realizable value of this equity has been calculated by multiplying the number of earned shares for each PSU grant by the stock price per share on the last trading day of the relevant performance period, and by determining the intrinsic (or “in the money”) value of stock options on these dates.

With respect to PSUs, for 2014 grants, the Company’s three-year performance produced an earning percentage of 112.84%. However, because the share price had decreased, the realizable value of such PSUs represented only 91% of the original target value. For 2015 grants, the Company’s three-year performance did not achieve the threshold level, and no PSUs were earned. For 2016 grants, the Company’s three-year performance produced an earning percentage of 75.09%, but because of the decrease in the share price, the realizable value of such PSUs represented just 22% of the target value. With respect to stock options granted in 2014, 2015 and 2016, because of the decrease in the stock price, all stock options granted did not have any intrinsic value at the conclusion of the respective performance periods.

 

Average NEO Annual Cash Incentive Payout as % of Target

 

  

NEO Annual Equity Grant Realizable Value as % of Target Value

 

LOGO    LOGO

Other NEO Base Salaries and Target Annual Cash Incentive Opportunities Were Not Increased: In light of the restructuring plan and the challenges the Company was facing, there were no increases to base salaries for the other NEOs compared to the end of 2017. In addition, there were no increases to target annual cash incentive opportunities as a percentage of base salary compared to the end of 2017.

 

 

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2018 Say-on-Pay Vote and Shareholder Engagement

In 2018, we became a U.S. domestic issuer and therefore were subject to a shareholder advisory vote on the compensation of our NEOs (the “say-on-pay” vote) for the first time. At the 2018 annual meeting of shareholders, our shareholders approved, on an advisory basis, the compensation of our NEOs, with approximately 76% of the votes cast on the matter “For” such approval. The Compensation Committee and the Board reviewed the result of the say-on-pay vote and recognized that it signaled the existence of concerns with the 2017 compensation program for our NEOs or one of its elements, and a need for shareholder engagement to better understand such concerns.

Beginning in late 2018 and continuing through early 2019, our Board engaged in a productive shareholder outreach effort to deepen relationships with our shareholders to help inform discussions on a number of issues, including executive compensation and corporate governance. During this time, we contacted shareholders representing approximately 50.2% of our outstanding shares. Our Chairman of the Board and the Chair of the Compensation Committee participated in discussions with shareholders representing approximately 37% of our outstanding shares, including several shareholders that voted “against” the 2018 say-on-pay proposal. We also engaged with the research teams at proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co.

Feedback from our shareholders was shared and discussed with the Compensation Committee, the Corporate Governance and Nominating Committee and the Board. Much of the feedback from our shareholders related to the one-time sign-on cash award provided to Mr. Schultz in connection with his appointment as our CEO in September 2017. As this cash award represented a singular compensation event to recruit a seasoned leader in the pharmaceutical industry with an extensive background leading global companies’ restructuring initiatives, this cash award does not reflect an ongoing component of our executive compensation program. Such one-time sign-on awards, particularly of such magnitude and structure, are not ones that the Compensation Committee and the Board take lightly; however, they felt that in this circumstance, it was absolutely critical for the future of the Company.

The Compensation Committee and the Board made significant efforts to address shareholders’ concerns, and in turn, revised certain elements of the Company’s go-forward executive compensation program that strengthen the alignment between pay and performance, enhance executive officers’ and directors’ alignment with shareholders, and provide greater transparency into our compensation practices and decisions. In addition to refining our executive compensation program, we also established critical feedback channels to ensure that we continually receive and consider shareholder input going forward. The Compensation Committee and the Board are committed to continually evaluating changes to the program that will enhance the link between our long-term strategy and objectives and the incentives for our executive officers, and enhancing alignment between our executive officers’ and our shareholders’ interests.

The following table summarizes the common points of feedback we received from our shareholders and the Compensation Committee and Board’s actions in response to such feedback. See “Proposal 1: Election of Directors—Shareholder Engagement” set forth above regarding additional actions related to corporate governance.

 

 

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What We Heard

  

 

What We Did

 

Cash sign-on compensation for the CEO is concerning given: large magnitude, not performance-based, short vesting schedule, acceleration upon certain termination and implications for succession planning

  

 

Confirmed that CEO annual target total direct compensation (i.e., excluding sign-on items) is reasonable and closely aligned with levels at peer companies and did not recommend any compensation increases in 2018 or 2019

 

The Compensation Committee and the Board decided to offer this sign-on cash award due the following circumstances that it faced at the time of Mr. Schultz’s hiring: Teva was facing an extremely challenging time; the new CEO would need to relocate to Israel; the candidate was already a sitting CEO; and the package needed to reflect the right balance of incentives for a successful turnaround and long-term creation of shareholder value with inducement to join the Company at a challenging point in its history

 

The Compensation Committee and the Board are committed to heightening their focus on succession planning to better prepare the Company to deal with future succession issues and potential challenges

Compensation of the Chairman of the Board is at the higher end of the range of the peer group

   Engaged an independent compensation consultant to review and advise on director compensation, which resulted in a proposal to shareholders to decrease compensation for the Chairman of the Board and revise the compensation for other directors to provide greater alignment with shareholders, effective January 1, 2019 (see Proposal 4 below); this review followed the Chairman’s waiver of his annual cash fee commencing August 2017

Preference for equity grants that are weighted toward performance-based awards over time-based awards

   Increased the proportion of equity that is performance-based from 33% to 50% for the CEO’s 2018 grant and from 33% to 50% for all other NEOs’ 2019 grants

Short- and long-term performance-based awards reward executives based on the same set of metrics

   Eliminated overlapping metrics in short- and long-term performance-based awards in 2019 by using non-GAAP EPS and Free Cash Flow metrics for the short-term incentive plan goals and non-GAAP Operating Profit and Net Debt for the long-term incentive plan goals

Preference for greater disclosure regarding short- and long-term incentive plan performance goals

   Enhanced disclosure to show the threshold, target and maximum performance levels and payout opportunities for the annual cash incentive plan and PSU performance period ending in 2018

One-time retention awards might undermine the effectiveness of the structured compensation program

  

Enhanced disclosure to emphasize that the Compensation Committee and the Board do not generally intend to use this tool except in a very judicious and limited manner in rare circumstances as warranted by the situation; in addition, the Compensation Committee and the Board intend to structure the regular compensation program in a manner that will help to avoid or limit the need for such awards in the future

 

In the event such grants are made, there will be enhanced disclosure of the rationale for such grants; many previous one-time awards were in connection with retaining talent through a period of transition or legacy awards from prior acquisitions

 

 

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As part of the broader review to further enhance our executive compensation program, the Compensation Committee and the Board made the following additional changes to our compensation program:

 

 

Issue Identified

  

 

What We Did

 

More robust stock ownership guidelines would strengthen alignment with Teva’s shareholders

  

 

Modified stock ownership guidelines as follows:

   increased ownership guideline for the CEO to 6x base salary from 4x base salary

   increased ownership guideline for other executive officers to 3x base salary from 2x base salary

   discontinued use of unvested PSUs to satisfy stock ownership guidelines

   adopted stock ownership guidelines for members of the Board of 5x multiple of annual cash fee for Board membership

 

 

Peer group criteria should reflect the Company’s performance and significant organizational changes

  

 

Conducted a review of our peer group for setting 2019 compensation to ensure its continued appropriateness; revised the peer group selection criteria by reducing the revenue range of companies included in the peer group to $10-$40 billion from $10-$70 billion, which resulted in the removal of five of the largest companies by revenue from our 2018 peer group to result in the 2019 peer group

 

 

 

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II. Compensation Governance

Compensation Governance

As part of the efforts of the Compensation Committee, to ensure that our compensation program, which includes our policies and practices, aligns our executive officers’ interests with those of Teva and its shareholders, the Compensation Committee assesses the effectiveness of our compensation program periodically and reviews risk mitigation and governance matters. We do this by maintaining the following best practices:

 

     What We Do         What We Don’t Do

 

 

 

 

Engage with shareholders to understand and address their perceptions and concerns regarding our executive compensation program

 

  

 

X

 

 

 

No immediate vesting (“single trigger”) of equity-based awards if awards are assumed or substituted in connection with a change-in-control; following a change-in-control, equity-based awards would only accelerate and vest in the event of a subsequent qualifying employment termination (“double trigger”)

 

 

 

 

 

Adopt a Compensation Policy that is approved by shareholders

 

  

 

X

 

 

 

“No hedging policy” regarding our shares applicable to directors and executive officers

 

 

 

 

 

Design our incentive compensation programs to align pay and performance

 

  

 

X

 

 

 

“No pledging policy” regarding pledging of shares applicable to directors and executive officers

 

 

 

 

 

Review compensation benchmark data from peers whose industry, revenues, and global footprint share similarities with Teva

 

  

 

X

 

 

 

No guaranteed performance bonuses

 

 

 

 

 

Use equity for long-term incentive awards that vest on the third anniversary for performance-based awards and in three equal installments on the second, third and fourth anniversary for time-based awards

 

  

 

X

 

 

 

No repricing of underwater stock options or backdating of stock options

 

 

 

 

 

Maintain an appropriate balance between
short- and long-term compensation, which
discourages short-term risk-taking at the
expense of long-term results

 

  

 

X

 

 

 

No discounted stock options

 

 

 

 

 

Cap annual cash incentive payouts and annual
equity grant date fair values at target pursuant to the Compensation Policy, and cap the number of PSUs that may be earned under an award

 

  

 

X

 

 

 

No highly leveraged incentive plans that encourage excessive risk-taking

 

 

 

 

 

Require executive officers to maintain meaningful levels of share ownership in compliance with our share ownership guidelines

 

  

 

X

 

 

 

No excise tax gross-up provisions in employment agreements

 

 

 

 

 

Maintain a clawback policy designed to recoup performance-based cash and equity compensation paid to executive officers based on erroneously prepared financial statements or other misconduct

 

    

 

 

 

 

Engage an independent compensation advisor to the Compensation Committee, who
performs no other consulting work for Teva

 

    

 

 

 

 

Conduct annual risk assessments of our
compensation program

 

        

 

 

38     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


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Executive Compensation

 

 

Compensation Policy under the Israeli Companies Law

Due to our unique position as an Israeli company with an extensive global footprint, we aim to adopt compensation policies and practices that match those of similar global companies, but we must also comply with applicable Israeli law, including the requirement that Israeli publicly traded companies adopt a compensation policy which is brought for shareholders’ approval and contains certain limits on elements of compensation. All executive compensation decisions must generally be consistent with that policy.

As approved at our 2016 annual meeting of shareholders, and as required by the Israeli Companies Law, we have adopted a Compensation Policy regarding the terms of office and employment of our “office holders” (as defined under the Israeli Companies Law, which includes directors, the CEO, other executive officers and any other managers directly subordinate to the CEO), including cash compensation, equity-based awards, releases from liability, indemnification and insurance, severance and other benefits (the “Terms of Office and Employment”). Each of our NEOs is an “office holder” within the meaning of the Israeli Companies Law. The Compensation Policy is reviewed from time to time by the Compensation Committee and Board to ensure its alignment with our compensation philosophy and objectives and to consider its appropriateness for Teva and is required to be brought at least once every three years to our shareholders for approval. Because three years have elapsed since our shareholders last approved the Compensation Policy in 2016, and as further described in “Proposal 3: Approval of Amended Compensation Policy” set forth below, Teva is submitting to shareholders a proposal to approve an amended Compensation Policy. Unless specifically indicated otherwise, reference to our Compensation Policy in this CD&A shall mean the Company’s Compensation Policy in effect for 2018.

Pursuant to the Israeli Companies Law, arrangements between Teva and its office holders must generally be consistent with the Compensation Policy. However, under certain circumstances, we may approve an arrangement that is not consistent with the Compensation Policy, if the arrangement is approved by a majority of our shareholders who participate and vote, provided that (i) the majority includes a majority of the votes cast by shareholders who participate and vote (abstentions are disregarded) who (A) are not controlling shareholders and (B) do not have a personal interest in the matter, or (ii) the votes cast against the arrangement by shareholders who are not controlling shareholders and who do not have a personal interest in the matter who participate and vote constitute two percent or less of the voting power of the Company (a “special majority”).

In addition, pursuant to the Israeli Companies Law, the Terms of Office and Employment generally require the approval of the Compensation Committee and the Board. The Terms of Office and Employment as applicable to directors further require the approval of the shareholders by a simple majority. The Terms of Office and Employment with respect to a CEO generally require the approval of the shareholders by the special majority referenced in the immediately preceding paragraph. Under certain circumstances, shareholder approval is not required with respect to the Terms of Office and Employment of a candidate for CEO if the Compensation Committee determines that the engagement will be frustrated if the approval is pursued, provided that the terms are consistent with the compensation policy. This provision was followed in the recruitment of our CEO, Kåre Schultz.

Under certain circumstances, if the Terms of Office and Employment of office holders who are not directors are not approved by the shareholders, where such approval is required, the Compensation Committee and the Board may nonetheless approve such terms. In addition, non-material amendments of the Terms of Office and Employment of office holders who are not directors may be approved by the Compensation Committee only and non-material amendments of the Terms of Office and Employment of office holders who are not directors and excluding the CEO may be approved by the CEO only, provided such approvals are permitted under the Compensation Policy and consistent therewith. Accordingly, pursuant to our Compensation Policy, our CEO is currently authorized to approve benefits and perquisites for any other executive officer with respect to any calendar year, provided that it does not exceed the value of such executive officer’s one-month base salary.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    39


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III. Compensation Philosophy and Objectives

We are committed to transparent and ethical business practices. Maintaining high standards of corporate governance and legal compliance are key factors in our success. This allows us to create long-term value for our shareholders as well as all of our other stakeholders, including employees, customers, suppliers and, above all, patients worldwide.

Our executive officer compensation philosophy also values the following principles:

 

   

promotion of our goals and supporting our business strategy and work plan;

 

   

paying executive officers equitably relative to one another based on their roles and responsibilities, educational background, skills, expertise, prior professional experience, achievements, seniority and location;

 

   

embedding a culture of strong performance with high integrity; and

 

   

encouraging good corporate governance and compliance practices.

Our objectives with respect to executive officer compensation, as summarized below, are designed to: (i) link pay to performance; (ii) align executive officers’ interests with those of Teva and its shareholders over the long term; (iii) encourage balanced risk management; and (iv) provide competitive compensation packages that motivate our executive officers.

 

   

Pay-for-performance: We aim to incentivize our executive officers by creating a strong link between their performance and compensation. Therefore, a significant portion of the total compensation package provided to our executive officers is based on measures that reflect both our short- and long-term goals and performance, as well as the executive officer’s individual performance and impact on shareholder value. In order to strengthen this link, we define clear and measurable quantitative and qualitative objectives that, in combination, are designed to improve our results and returns to shareholders.

 

   

Alignment of executive officers’ interests with those of Teva and its shareholders: In order to promote retention and motivate executive officers to focus on long-term objectives and the performance of Teva’s shares, a significant portion of the compensation packages of our executive officers is granted in the form of equity-based compensation, which creates a direct link between the interests of executive officers and the interests of Teva and its shareholders.

 

   

Risk management: Compensation is structured in a manner that creates an incentive to deliver high performance (both short- and long-term) while taking into account our compliance and risk management philosophy and avoiding undue pressure on executive officers to take excessive risks, thereby encouraging a balanced and effective risk-taking approach. Our compensation elements are designed with this in mind, by including mechanisms that reduce incentives to expose Teva to imprudent risks that may harm the Company or our shareholders in the short and long term. This is achieved by using tools such as (i) placing maximum limits on short- and long-term incentives; (ii) measuring performance with key performance indicators that are designed to reduce incentives to take excessive risks; (iii) using compensation vehicles with diverse performance measures; (iv) granting a mix of equity-based compensation types that have long-term vesting schedules, which tie the awards to a longer performance cycle; and (v) requiring clawback of compensation payments in certain circumstances.

 

   

Competitiveness: We compete with global companies to attract and retain highly talented professionals with the necessary capabilities to promote creativity, encourage high achievement, manage our complex business and worldwide operations and execute our strategy. For these reasons, the total compensation package for our executive officers is generally targeted at the median range of

 

 

40     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


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Executive Compensation

 

 

  the peer group, which includes global pharmaceutical companies, as well as other companies which compete with Teva for similar talent, and may also include companies in relevant geographical locations. Executive officers’ total compensation may deviate from the target level as required to attract or retain certain individuals or reflect their respective characteristics or performance.

IV. Compensation Determination Process

The Compensation Committee and the Board design the executive compensation program with the intention of accomplishing the goals described above. In determining executive compensation, the Compensation Committee obtains input and advice from its independent compensation consultant, as applicable, and reviews recommendations from our CEO with respect to the performance and compensation of our other executive officers. The Compensation Committee and, if applicable, the Board, review and approve compensation and performance awards of the CEO and executive officers and consider financial, operational and share price performance to determine appropriate executive compensation parameters.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    41


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Executive Compensation

 

 

Key Participants

The roles and responsibilities of all parties involved with the compensation determination process are set forth below:

 

Participant

   Responsibilities

 

Shareholders

  

 

   Approve the Compensation Policy as required under the Israeli Companies Law, including caps and thresholds for cash incentives and target equity, at least once every three years, and any changes thereto

  Cast advisory vote on proposal(s) regarding executive compensation under U.S. law

  Approve any compensation that deviates from the Compensation Policy

  Approve compensation of the CEO

  Approve compensation of directors

  Approve equity plans, material changes to equity plans and share reserve increases

  Provide direct feedback and input to Teva and our Board

 

Board of Directors

  

 

  Evaluate performance of the CEO and executive officers, including the NEOs

  Review and approve (subject to shareholder approval in certain cases):

  Equity plans, material changes to equity plans and share reserve increases

  CEO and executive compensation, with input and recommendation from, and prior approval of, the Compensation Committee

  Changes to the Compensation Policy

 

Human Resources

and Compensation

Committee

  

 

  Consider shareholder feedback and all other factors to help align our compensation program with the interests of Teva and our shareholders and long-term value creation

  Review and approve (subject to Board approval in certain cases):

  CEO and executive compensation, including adjustments to executive officers’ base salaries, target cash incentives and equity compensation, as well as other components of compensation

  Performance-based metrics and goals under the annual cash incentive plan and PSU plan

  Achievement of performance-based goals under the annual cash incentive plan and associated with PSUs

  Equity plans and awards

  The Compensation Policy and its continued appropriateness (periodically)

  The CD&A and the compensation tables and accompanying narrative descriptions

 

Independent

Compensation

Consultant

  

 

  Advise the Compensation Committee on various director and executive compensation and governance topics, including:

  Compensation Policy, pay philosophy, best practices and market trends

  Selection of peer group companies

  Director and executive compensation practices and levels at peer group companies

  Design of annual cash incentive plan and equity plans and awards and grants under each

  Stock ownership guidelines

  Review and provide an independent assessment of the data and materials presented by management to the Compensation Committee

  Participate in Compensation Committee meetings as requested

 

CEO

  

 

   Evaluate the performance of other executive officers, including the other NEOs, and recommend adjustments to base salaries, annual cash incentives and long-term equity compensation

  Develop business goals, which are taken into account by the Compensation Committee and Board in the design of our executive compensation program

 

 

42     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


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Role of Independent Compensation Consultant

The Compensation Committee has the authority to retain independent compensation consultants to assist it in the performance of its duties and responsibilities without consulting or obtaining the approval of management of the Company. The Compensation Committee retained Pay Governance LLC (“Pay Governance”) as its independent compensation consultant in 2015, and in July 2018, the Compensation Committee selected a new advisor, Semler BrossyConsulting Group LLC (“Semler Brossy”). Pay Governance and Semler Brossy reported directly to and were directly accountable to the Compensation Committee. While the Compensation Committee took into consideration the review and recommendations of these independent advisors when making decisions about the Company’s executive and director compensation practices and governance related topics, the Compensation Committee ultimately made its own independent decisions about these matters.

The Compensation Committee assessed the independence of Pay Governance and Semler Brossy pursuant to the rules of the SEC and the NYSE. In doing so, the Compensation Committee considered each of the factors set forth by the SEC and NYSE with respect to a compensation consultant’s independence. The Compensation Committee also considered the nature and amount of work performed for the Compensation Committee and the fees paid for those services in relation to the firms’ total revenues. After these reviews, the Compensation Committee concluded that there were no conflicts of interest, and that both Pay Governance and Semler Brossy were independent pursuant to SEC and NYSE rules.

Compensation Peer Group and Peer Selection Process

In setting compensation for our CEO and executive officers, the Compensation Committee and the Board consider comparative compensation information from a relevant group of peer companies (the “Peer Group”) as one point of reference.

The Peer Group was selected based on primary selection criteria, including:

 

   

Industry: Pharmaceutical sector/subsector;

 

   

Company size: $10 billion to $70 billion of revenues, market capitalization of more than $10 billion, and a similar number of employees as Teva; and

 

   

Global presence and geography: Global footprint and breadth, with focus on U.S. and European markets; we made a conscious decision to include both U.S. and non-U.S. companies (in terms of headquarters and country of primary exchange listing) in order to reflect Teva’s international presence and global talent market.

Company revenues are considered a primary factor in determining the Peer Group, which has been constructed so that our revenues are generally in the middle of the revenue range of the Peer Group companies. The Compensation Committee believes that the Peer Group companies are the companies with which we compete for talent. Periodically, the Compensation Committee reassesses the companies within the Peer Group and makes changes as appropriate, considering changes in the Peer Group companies, such as mergers and acquisitions, and changes in our business.

The Compensation Committee and the Board consider data from the Peer Group companies in reviewing market pay levels and practices. Other factors considered include sustained performance, criticality of contributions to Teva and the executive officer’s role, skills, experience and development. The Compensation Committee retains discretion in determining the nature and extent of the use of Peer Group data.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    43


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The Peer Group established for setting 2018 compensation consisted of the following companies:

 

Company

   Headquarters   

Revenues (1)

($ in millions)

     Market Cap (1)
($ in millions)
     Employees (1)  

 

AbbVie, Inc.

 

  

 

United States

 

  

 

$

 

 

25,638

 

 

 

 

  

 

$

 

 

139,451

 

 

 

 

  

 

 

 

 

30,000

 

 

 

 

 

Allergan Plc

 

  

 

Ireland

 

  

 

$

 

 

14,571

 

 

 

 

  

 

$

 

 

68,416

 

 

 

 

  

 

 

 

 

16,700

 

 

 

 

 

Amgen, Inc.

 

  

 

United States

 

  

 

$

 

 

22,683

 

 

 

 

  

 

$

 

 

135,544

 

 

 

 

  

 

 

 

 

19,200

 

 

 

 

 

Astellas Pharma, Inc.

 

  

 

Japan

 

  

 

$

 

 

10,649

 

 

 

 

  

 

$

 

 

26,226

 

 

 

 

  

 

 

 

 

17,202

 

 

 

 

 

 

AstraZeneca Plc

  

 

 

United Kingdom

  

 

 

$

 

 

25,767

 

 

 

  

 

 

$

 

 

84,121

 

 

 

  

 

 

 

 

59,700

 

 

 

 

 

Bayer AG

 

  

 

Germany

 

  

 

$

 

 

50,286

 

 

 

 

  

 

$

 

 

108,974

 

 

 

 

  

 

 

 

 

115,200

 

 

 

 

 

Bristol-Myers Squibb Co.

 

  

 

United States

 

  

 

$

 

 

19,427

 

 

 

 

  

 

$

 

 

103,906

 

 

 

 

  

 

 

 

 

25,000

 

 

 

 

 

Celgene Corp. (2)

 

  

 

United States

 

  

 

$

 

 

10,922

 

 

 

 

  

 

$

 

 

112,572

 

 

 

 

  

 

 

 

 

7,132

 

 

 

 

 

Eli Lilly & Co.

 

  

 

United States

 

  

 

$

 

 

21,222

 

 

 

 

  

 

$

 

 

92,384

 

 

 

 

  

 

 

 

 

41,975

 

 

 

 

 

Gilead Sciences, Inc.

 

  

 

United States

 

  

 

$

 

 

30,317

 

 

 

 

  

 

$

 

 

108,744

 

 

 

 

  

 

 

 

 

9,000

 

 

 

 

 

GlaxoSmithKline Plc

 

  

 

United Kingdom

 

  

 

$

 

 

42,154

 

 

 

 

  

 

$

 

 

98,080

 

 

 

 

  

 

 

 

 

99,300

 

 

 

 

 

Merck & Co., Inc.

 

  

 

United States

 

  

 

$

 

 

39,496

 

 

 

 

  

 

$

 

 

178,141

 

 

 

 

  

 

 

 

 

68,000

 

 

 

 

 

Merck KGaA

 

  

 

Germany

 

  

 

$

 

 

16,154

 

 

 

 

  

 

$

 

 

50,217

 

 

 

 

  

 

 

 

 

50,414

 

 

 

 

 

Mylan NV

 

  

 

United Kingdom

 

  

 

$

 

 

11,121

 

 

 

 

  

 

$

 

 

16,786

 

 

 

 

  

 

 

 

 

35,000

 

 

 

 

 

Novartis AG

 

  

 

Switzerland

 

  

 

$

 

 

47,636

 

 

 

 

  

 

$

 

 

225,385

 

 

 

 

  

 

 

 

 

118,393

 

 

 

 

 

Novo Nordisk A/S

 

  

 

Denmark

 

  

 

$

 

 

16,109

 

 

 

 

  

 

$

 

 

122,966

 

 

 

 

  

 

 

 

 

41,971

 

 

 

 

 

Pfizer Inc.

 

  

 

United States

 

  

 

$

 

 

52,824

 

 

 

 

  

 

$

 

 

213,867

 

 

 

 

  

 

 

 

 

96,500

 

 

 

 

 

Roche Holding AG

 

  

 

Switzerland

 

  

 

$

 

 

50,405

 

 

 

 

  

 

$

 

 

220,782

 

 

 

 

  

 

 

 

 

94,052

 

 

 

 

 

Sanofi

 

  

 

France

 

  

 

$

 

 

36,364

 

 

 

 

  

 

$

 

 

127,112

 

 

 

 

  

 

 

 

 

106,859

 

 

 

 

 

Shire plc (2)

 

  

 

Ireland

 

  

 

$

 

 

12,767

 

 

 

 

  

 

$

 

 

46,995

 

 

 

 

  

 

 

 

 

23,906

 

 

 

 

 

Takeda Pharmaceutical Co., Ltd.

 

  

 

Japan

 

  

 

$

 

 

14,062

 

 

 

 

  

 

$

 

 

43,027

 

 

 

 

  

 

 

 

 

29,900

 

 

 

 

 

   

Revenues

($ in millions)

  Market Cap
($ in millions)
  Employees

 

Teva Pharmaceutical Industries Ltd. Percentile Rank

 

 

 

48th

 

 

 

5th

 

 

 

62nd

 

 

Median

 

 

 

$22,683

 

 

 

$108,744

 

 

 

41,971

 

(1)

Source (revenue, market capitalization and employee number information): Dow Jones (September 2017).

(2)

New peer company added for 2018.

The Compensation Committee periodically reviews the Peer Group to ensure that the companies included continue to meet the primary selection criteria outlined above. The Compensation Committee revised the Peer Group for 2018 by adding Celgene Corp. and Shire plc since they met the Peer Group criteria. In 2019, the Compensation Committee revaluated its primary selection criteria for the Peer Group in light of company performance and conditions and decided to reduce the revenue range to $10 billion to $40 billion. This resulted in the removal of the following five companies from the Peer Group when setting 2019 compensation: Roche Holding AG, Pfizer Inc, Novartis AG, GlaxoSmithKline Plc, and Merck & Co., Inc. In addition, Biogen Inc. was added since it met the Peer Group criteria.

 

 

44     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


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Internal Considerations

Internal fairness: As a global company with complex operations worldwide and with many of our executive officers and a majority of our employees located outside of Israel, we position our executive officer compensation on a competitive scale commensurate with each executive officer’s role and responsibilities. Due to the large variations in customary pay levels, compensation practices and mandatory compensation requirements among the jurisdictions in which executive officers and employees are located, the Compensation Committee and the Board believe that a meaningful comparison between executive officer compensation and the compensation of other employees should be made, taking into account the relevant geographic location in which the executive officer is located, the executive officer’s role and scope of responsibility and the relevant geographic location of employees under the executive officer’s area of responsibility. Therefore, in addition to external benchmarking, the Compensation Committee and the Board review relevant internal ratios between executive officer compensation and the compensation of other employees, including the average and median values of employee compensation in Israel and other relevant geographies and its potential effect on our labor relations.

Previous and existing compensation arrangements: When considering the compensation package of an executive officer, the Compensation Committee and the Board may consider the previous and existing compensation arrangements of such individual and his or her scope of responsibility.

In addition, see “Additional Compensation Information—2018 Pay Ratio” set forth below.

Risk Considerations

While the Board has overall responsibility for risk oversight, each of the standing committees of the Board regularly assesses risk in connection with executing its responsibilities. Therefore, the Compensation Committee assesses the potential risks arising from our compensation program, policies and practices. The Compensation Committee coordinates with our legal, human resources and other departments, considers shareholder feedback and interests and consults with its compensation consultant. The Compensation Committee reviewed and discussed the assessment for 2018. The Compensation Committee determined that our compensation program, policies and practices do not create risks that are reasonably likely to have a material adverse effect on Teva.

V. Components of Our Compensation Program

2018 Components in General

The Compensation Committee, Board and shareholders selected the components of compensation set forth in the chart below to achieve our stated executive officer compensation program objectives. The Compensation Committee and the Board review all components of the compensation of executive officers in order to verify that each executive officer’s total compensation is consistent with our compensation philosophy and objectives and within the parameters set by our shareholder-approved Compensation Policy. The majority of the compensation of each executive officer is variable, at risk and subject to the achievement of performance goals in order to be earned.

 

Element

   Description    Additional Detail

 

Base Salary

  

 

Fixed cash compensation

 

Determined based on each executive officer’s role, individual skills, experience, performance, external market value and internal equity

  

 

Base salaries are intended to provide stable compensation to executive officers, allow Teva to attract and retain competent executive talent and maintain a stable leadership team.

 

 

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Element

   Description    Additional Detail

 

Short-Term Incentives: Annual Cash Incentive Opportunities

  

 

Variable cash compensation based on the level of achievement of Company and individual performance objectives that are pre-determined annually

 

Performance against goals must be at least 85% of target (90% for the CEO) and other predetermined super-measures must be met in order for any payout to occur

 

Cash incentives are capped at a maximum of 200% of base salary if achievement level is at least 120% of performance goal

 

Target cash award as a percentage of base salary is capped at 100% (140% for the CEO)

 

  

 

Annual cash incentive opportunities are designed to ensure that our executive officers are aligned in reaching our short- and long-term goals; payout levels are determined based on actual financial and operational results, as well as individual performance.

 

Long-Term Incentives: Annual Equity-Based Compensation

  

 

Variable equity-based compensation

 

Maximum monetary grant value of the annual equity award is $6.0 million at target for the CEO and $3.5 million at target for executive officers

 

Performance Share Units (PSUs): Restricted share units that are earned only upon the attainment of 3-year performance goals

 

Corporate performance against goals must be at least 85% of target in order for award to be earned for that metric

 

Awards capped at 300% of target number of shares if achievement level is at least 120% of performance goal and 100th percentile relative TSR

 

Restricted Share Units (RSUs): Restricted share units that are time-based

 

Stock Options: Right to purchase shares at a price equal to the stock price on the grant date

  

 

Equity-based compensation is used to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders, as well as to attract, motivate and retain executive officers for the long term.

 

In 2018, 50% of the value granted to the CEO was in the form of PSUs, 25% was in the form of RSUs, and 25% was in the form of stock options. For other executive officers, 33% of the value granted was in the form of PSUs, 33% was in the form of RSUs, and 33% was in the form of stock options.

 

In 2019, all executive officers received 50% of the value granted in the form of PSUs and 50% in the form of RSUs. No stock options were granted in 2019.

 

PSUs granted in 2019 are capped at 240% of the target number of shares if achievement level is at least 120% of performance goal and 75th

percentile relative TSR.

 

 

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2018 Target Pay Mix

The target pay mix supports the core principles of our executive officer compensation philosophy of compensating for performance and aligning executive officers’ interests with those of Teva and its shareholders, by emphasizing short- and long-term incentives.

The following charts outline the Compensation Committee and the Board’s allocation of annual target total direct compensation payable to the CEO and to other NEOs. The Compensation Committee and the Board allocated compensation among base salary, the target amount payable under the short-term annual cash incentive plan and long-term annual equity, as determined using the fair value of PSUs at target level, RSUs and stock options granted under our long-term equity incentive plan. The Compensation Committee and the Board determined these allocations and amounts with reference to, and consistent with, the allocations among such elements at the Peer Group companies and within the maximum limits set forth in the Compensation Policy, respectively. A sizeable majority of annual target total direct compensation is variable at-risk pay, consistent with our pay-for-performance philosophy. Specifically, in 2018, 82% of Mr. Schultz’s annual target total direct compensation was at-risk compensation, and 83%, on average, of the annual target total direct compensation of our other NEOs was at-risk compensation. We consider compensation to be “at risk” if it is subject to performance-based payment or vesting conditions or if its value depends on stock price appreciation.

Target Pay Mix

 

 

LOGO

Percentage of annual target total direct compensation as calculated above is based on the 2018 base salary, the 2018 annual cash incentive compensation opportunity (assuming achievement at the target level), and the grant date fair value of the annual equity grant made in February 2018 which included PSUs (assuming vesting at the target achievement level), RSUs, and stock options. Each compensation element is outlined in more detail in the 2018 Summary Compensation Table and 2018 Grants of Plan-Based Awards table.

Base Salary

Purpose: Base salaries provide stable compensation to executive officers and allow Teva to attract and retain competent executive talent and maintain a stable leadership team. Base salaries vary among executive officers, and are individually determined according to each executive officer’s areas of responsibility, role and experience, based on a variety of considerations, including:

 

   

Professional background: Factors such as education, skills, expertise, professional experience and achievements are considered.

 

 

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Competitiveness: The base salary of executive officers is evaluated for competitiveness by considering external information with respect to the Company’s peer group selected based on such factors among others as Teva’s size, global footprint, nature of activities and competitors for similar talent, as well as the relevant geographic location.

 

   

Internal fairness: The variation in the relative base salary among executive officers is designed to reflect the differences in position, education, scope of responsibilities, location, previous experience in similar roles and contribution to the attainment of our goals.

Adjustments to base salary: The Compensation Committee and the Board may periodically consider and approve base salary adjustments for executive officers. The main considerations for a salary adjustment are similar to those used in initially determining base salary, but may also include a change of role or responsibilities, recognition for professional achievements, regulatory or contractual requirements, budgetary constraints or market trends. The Compensation Committee and the Board also consider the previous and existing compensation arrangements of the executive officer whose base salary is being considered for adjustment.

2018 NEO base salaries remained unchanged: For 2018, there were no changes made to the annual base salaries for each of our NEOs (disregarding any effects of foreign exchange rates) compared to the end of 2017. The actual salaries paid to Mr. Schultz, Mr. McClellan and Dr. Fridriksdottir in our 2017 Summary Compensation Table were pro-rated to reflect their start dates in their positions.

 

Executive

  

Annualized
2017 Base Salary

($)

  

Annualized
2018 Base Salary

($)

  

2017-2018  

% Change  

 

Kåre Schultz

 

    

 

$

 

 

2,000,000

 

 

 

    

 

$

 

 

2,000,000

 

 

 

    

 

 

 

 

0.0

 

 

%

 

 

Michael McClellan

 

    

 

$

 

 

700,000

 

 

 

    

 

$

 

 

700,000

 

 

 

    

 

 

 

 

0.0

 

 

%

 

 

Dr. Carlo de Notaristefani

 

    

 

$

 

 

836,400

 

 

 

    

 

$

 

 

836,400

 

 

 

    

 

 

 

 

0.0

 

 

%

 

 

Dr. Hafrun Fridriksdottir

 

    

 

$

 

 

720,000

 

 

 

    

 

$

 

 

720,000

 

 

 

    

 

 

 

 

0.0

 

 

%

 

 

Mark Sabag (1)

 

    

 

$

 

 

604,637

 

 

 

    

 

$

 

 

605,749

 

 

 

    

 

 

 

 

0.2

 

 

%

 

(1)

Mr. Sabag is paid in Israeli shekels. Difference in salary is due to fluctuations in exchange rates.

Annual Cash Incentives

Purpose: The annual cash incentive component aims to ensure that our executive officers are aligned in reaching our short- and long-term goals. Annual cash incentives are designed to provide a significant pay-for-performance element of our executive compensation package.

Annual cash incentives: Payout eligibility and levels of individual annual cash incentives are determined based on actual financial and operational results, as well as individual performance. Following approval of the Company’s annual operating plan each calendar year, the Compensation Committee and the Board, following the CEO’s recommendations, determine the performance measures, taking into account our short- and long-term goals, as well as our compliance and risk management policies. The Compensation Committee and the Board may also determine any applicable super-measures that must be met for entitlement to the annual cash incentive (all or any portion thereof) and the formula for calculating any annual cash incentive payout, with respect to each calendar year, for each executive officer.

In special circumstances, as determined by the Compensation Committee and the Board (e.g., regulatory changes and significant changes in our business environment), the Compensation Committee and the Board may modify the objectives and/or their relative weights during the calendar year.

 

 

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Parameters: Pursuant to our Compensation Policy, individual annual cash incentive parameters are determined by the Compensation Committee and the Board, taking into account our short- and long-term goals, as well as our risk management policy.

 

   

Thresholds: Achievement of less than 85% of an executive officer’s performance measures (or 90% with respect to the CEO) in a given calendar year calculated on a weighted average basis will not entitle the executive officer to an annual cash incentive.

 

   

Target incentive: The target incentive, which is the annual cash incentive amount that an executive officer will be entitled to receive upon achievement of 100% of his or her performance measures, is up to 100% of the executive officer’s annual base salary (other than with respect to the CEO). The target incentive for the CEO is up to 140% of the CEO’s annual base salary.

 

   

Maximum incentive: The maximum incentive, which is the maximum annual cash incentive amount that an executive officer, including the CEO, will be entitled to receive upon achievement of at least 120% of his or her performance measures for any given calendar year, will not exceed 200% of the executive officer’s annual base salary.

 

   

Payout formula: The formula for calculating the annual cash incentive payout with respect to each calendar year refers to the target and maximum incentive and applicable thresholds and super-measures. The formula may result in a partial annual cash incentive payout in the event that an executive officer achieves less than 100% (but no less than 85%, and with respect to the CEO, no less than 90%) of his or her performance measures.

 

   

Super-measures: The Compensation Committee and the Board may determine one or more additional mandatory requirements that must be met to receive the annual cash incentive (all or any portion thereof) with respect to each calendar year. The super-measures may be determined as an absolute parameter (e.g., operating profits, revenues and EPS) and/or as a parameter that is relative to a peer group (e.g., a comparison of Teva’s EPS to the peer group EPS, or Teva’s TSR to the peer group TSR).

 

   

Budget: The Compensation Committee and the Board may set an annual budget for annual cash incentives awarded to executive officers. In special circumstances, as determined by the Compensation Committee and the Board (e.g., regulatory changes and significant changes in our business environment), the Compensation Committee and the Board may amend or modify the budget during the applicable period.

The annual cash incentive parameters are intended to drive motivation and performance higher, while the maximum payout ceiling provides a risk management mechanism that assists in protecting Teva from excessive risk taking to achieve short-term results that could expose us to risk in the long term, and aligns target setting with our pre-defined risk profile.

In the event of an executive officer’s termination of service or employment where such executive officer served Teva for less than 12 months, he or she will not be entitled to an annual cash incentive, unless otherwise determined by the Compensation Committee and Board.

2018 Annual Cash Incentives

As provided in our Compensation Policy, annual cash incentives are designed to ensure that our executive officers are aligned in reaching our short- and long-term goals. Annual cash incentives are therefore a strictly pay-for-performance compensation element, as payout eligibility and levels are determined based on actual financial and operational performance, as well as individual performance.

As provided in our Compensation Policy and as described above, our annual cash incentive plan for executive officers takes the form of cash awards that are earned based on one-year performance. This

 

 

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structure aligns our executive officers’ interests with those of our shareholders by providing incentives to the executive officers to achieve certain short-term financial and operational goals that the Board determined to be vital to executing our business strategy.

Target cash incentive percentage opportunities for our NEOs in 2018 were not changed compared to 2017, and they remained as set forth in the following table:

 

Executive

  

 

2017 Target
Annual Cash
Incentive
(% of Base  Salary)

  2018 Target
Annual Cash
Incentive
(% of Base Salary)  

 

Kåre Schultz

       140 %       140 %

 

Michael McClellan

       100 %       100 %

 

Dr. Carlo de Notaristefani

       100 %       100 %

 

Dr. Hafrun Fridriksdottir

       100 %       100 %

 

Mark Sabag

 

      

 

100

 

%

 

     

 

100

 

%

 

Annual Cash Incentive Calculation Methodology

 

Eligible Salary           X           

Target Incentive    

%    

      X           

Overall Performance    

 

Factor %    

      =           

Annual Cash    

Incentive    

Payout    

The amount of the annual cash incentive for the executive officers, including the CEO and our other NEOs, is determined as follows:

First, the Compensation Committee determines a target cash incentive opportunity by taking the individual’s base salary and multiplying it by the individual’s target incentive percentage.

Second, the Compensation Committee determines an overall performance factor percentage for each executive officer. The performance factor is based on performance measures, which consist of Company financial measures and individual performance measures. For Company financial measures, the Compensation Committee calculates a performance achievement percentage against goals. For individual performance measures, the Compensation Committee assesses performance achievement against goals and determines the individual performance rating and individual performance achievement percentage. The Compensation Committee then calculates the weighted average of the Company and the individual performance achievement percentages to determine an overall performance achievement percentage. The overall performance achievement percentage is then converted to an overall performance factor, as described below. If the overall performance factor is below the threshold, then the performance factor will be zero (and the individual will not receive an annual cash incentive payout). If the overall performance factor is between the threshold and maximum, the individual’s overall performance factor will be determined by linear interpolation between points. If the overall performance factor is above the maximum, the maximum performance factor will be applied.

Finally, the Compensation Committee takes the target cash incentive opportunity of each executive officer and multiplies it by the applicable overall performance factor of the person to determine the actual cash incentive to be paid. The Compensation Committee then approves and presents the Company and individual-level performance achievements, the calculation of performance factors and the determination of incentive payout amounts to the Board for its review and approval.

For the 2018 annual cash incentive, the Compensation Committee and the Board increased the weight allocated to Company-wide financial measures and decreased the weight given to other operational and

 

 

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business unit measures in order to focus executive officers on what they believe are the most critical strategic priorities of servicing debt, controlling expenses and improving profitability. The Compensation Committee and the Board established the following performance measure categories and weightings for 2018:

 

Category

 

  

Weighting

 

 

Additional Weighting

 

Company Financial

       75 %  

50% Non-GAAP EPS

 

      

25% Free Cash Flow

 

Individual

       25 %    

Company Financial Measures: The Compensation Committee and the Board believe that financial measures are key performance indicators of the present and future prospects of our business and key drivers of shareholder value, and selected the following financial measures for use in the annual cash incentive plan:

 

   

Non-GAAP EPS: Calculated as net income attributable to ordinary shareholders divided by the weighted average number of shares outstanding (fully diluted), is a measure of income and represents profitability. It focuses managers on expense control in addition to revenue generation and is viewed as a strong indicator of sustained performance over the short and long term.

 

   

Free Cash Flow: Calculated as the cash generated by Teva from operational activity after deducting investment in capital expenditures such as buildings or equipment, serves to focus employees on generating cash in the short and long term to fund operations. It focuses managers on expense control in addition to revenues and on improvement in working capital.

The Compensation Committee and the Board used non-GAAP measures as performance metrics in structuring our annual cash and long-term equity incentive programs. The use of these measures is not intended to replace comparable GAAP measures as set forth in our consolidated financial statements. We believe that these non-GAAP measures are helpful to management and investors as measures of operating performance because they exclude various items that do not relate to or are not indicative of operating performance.

Company Performance Goals: The Compensation Committee and the Board set the threshold, target and maximum performance levels for the Company performance goals which were considered rigorous and took into account the relevant risks and opportunities. The Compensation Committee and the Board recognized that the performance levels that it had set for the 2017 Net Revenue, non-GAAP EPS and Free Cash Flow measures, which had resulted in no annual incentive payout, had proved unattainable in the face of economic and business conditions. In developing our 2018 business plan and corresponding incentive plan performance metric targets, which were based on such plan and were aligned to the high end of our 2018 outlook as communicated to investors in February 2018, the Compensation Committee and the Board made key assumptions including a decline in total revenue compared to 2017 mainly because of an:

 

   

Anticipated decline in COPAXONE revenue of over 50% from $3.8 billion in 2017 to $1.8 billion in 2018 due to expected increase in generic competition;

 

   

Anticipated decline in U.S. generics business revenue of approximately 20% compared to 2017 due to intensifying competition and pricing pressure; and

 

   

Anticipated decline of approximately $1.0 billion in revenue due to divestitures, deconsolidation of Venezuela and assets sold.

As a result, the Compensation Committee and the Board set target levels of non-GAAP EPS and Free Cash Flow performance that were aggressive under the circumstances and attainable only with strong performance.

 

 

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In spite of the challenges we faced, we made exceptional progress, mainly because we achieved:

 

   

Actual 2018 COPAXONE revenue of $2.4 billion, reflecting a decrease of only 38% from 2017 compared to an anticipated decrease of over 50%, mainly due to our ability to maintain share in the U.S. and developing market conditions; and

 

   

Actual 2018 spend base reduction of $2.2 billion, which was ahead of plan on the total $3.0 billion reduction targeted by the end of 2019.

We outperformed the high end of our 2018 outlook as communicated to investors in February 2018 for non-GAAP EPS and Free Cash Flow mainly due to the above.

The Compensation Committee and the Board established a threshold performance level of 85% of target and maximum performance level of 120% of target for each Company performance metric. The Compensation Committee and the Board set the performance levels required to earn the maximum annual cash incentive at levels that presented a significant challenge requiring exceptionally strong performance.

 

Weighting

   Performance Metric   

Threshold

(85%)

    

Target

(100%)

    

Maximum

(120%)

     Actual
Results
    

 

%
Achievement

 

 

50%

  

 

Non-GAAP EPS

  

 

$

 

2.12

 

 

  

 

$

 

2.50

 

 

  

 

$

 

2.99

 

 

  

 

$

 

2.92

 

 

  

 

117%

25%

   Free Cash Flow    $ 2.4      $ 2.8B      $ 3.4B      $ 3.7B     

 

 

120%
(maximum;

132% actual)

 

Super-Measures: The Compensation Committee and the Board included a super-measure in the annual incentive plan design. Achievement percentage of less than 85% of target for either non-GAAP EPS or Free Cash Flow would result in no annual cash incentive payment for executive officers.

 

 

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Individual Measures: The remaining 25% of the measures under the 2018 annual cash incentive plan were individual performance measures established by the Compensation Committee and the Board early in the year. These measures included components specific to the nature of each executive officer’s position and area of responsibility. The Compensation Committee and the Board evaluated performance with respect to the individual measures by determining an individual performance rating and individual performance achievement percentage, which was then used as a component for determining the overall performance factor.

 

Executive

   Individual Goals    %
Achievement

Kåre Schultz

  

 

   Ensuring compliance standards are met by meeting targets

   Achieving specialty product milestones by meeting targets

   Achieving generic products submissions targets

   Achieving restructuring plan targets

   112%

Michael McClellan

  

 

   Supporting the creation of a business integrity and compliance-oriented work environment

   Achieving certain restructuring plan targets by meeting annual budget

   Completing initiatives to support debt management

   Completing other critical function initiatives

   100%

Dr. Carlo de Notaristefani

  

 

   Meeting target customer service levels

   Supporting generic and specialty product launches by meeting targets

   Ensuring high quality and Environmental Health & Safety standards by meeting targets

   109%

Dr. Hafrun Fridriksdottir

  

 

   Ensuring compliance standards are met by meeting targets

   Achieving specialty product milestones by meeting targets

   Achieving generic products submissions targets

   Completing critical business optimization targets

   110%

Mark Sabag

  

 

   Supporting the creation of a business integrity and compliance-oriented work environment

   Achieving restructuring plan targets including annual budget, headcount reduction and cost management

   Completing other critical function initiatives

   110%

 

 

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Overall Performance Factor: The Compensation Committee and the Board then calculated an overall performance factor for each executive officer by taking the weighted average of the achievement percentages of the Company financial and the individual measures and converting that weighted average to an overall performance factor based on the following table:

 

Weighted Average Level of

Achievement of Objectives

  

Overall Performance

Achievement % (1) (2)

  

Overall Performance Factor:

Potential Annual Cash

Incentive
as a % of Annual Base Salary  (3)

Below Threshold

  

 

Below 85%

(below 90% for CEO)

  

 

0% (no annual cash incentive

payment)

Threshold

  

 

85%

(90% for CEO)

   25%

 

Target

  

 

100%

  

 

100% (140% for CEO)

 

Maximum Cash Incentive

  

 

120%

  

 

200%

 

(1)

Payouts for performance for the CEO are determined linearly based on a straight-line interpolation of the applicable payout range (i.e., 11.5% for each percentile change in weighted average performance between threshold and target and 3.0% for each percentile change in performance between target and maximum). No additional payout is made for weighted average performance achievement in excess of 120%.

(2)

Payouts for performance for other executive officers are determined linearly based on a straight-line interpolation of the applicable payout range (i.e., 5.0% for each percentile change in performance between threshold and maximum). No additional payout is made for performance achievement in excess of 120%.

(3)

Payout as a percentage of target for the CEO at threshold is 18% and at maximum is 143%. Payout as a percentage of target for other executive officers is the same as the percentage of base salary as detailed in the table above because their target annual cash incentive is 100% of base salary.

Payout Calculation: For 2018, the Compensation Committee and the Board reviewed Company financial and individual performance against 2018 objectives in order to make determinations regarding whether any payouts were due under our 2018 executive officers’ annual incentive plan.

The table below sets forth the calculation of the overall performance achievement percentage and performance factor for our CEO and other NEOs:

 

Executive

  

Non-GAAP EPS

% Achievement

(50% weighting)

 

Free Cash Flow
% Achievement

(25% weighting)

 

 

Individual
Performance

% Achievement

(25% weighting)

  Overall
Performance
Achievement
 

Overall
Performance 

Factor

 

Kåre Schultz

       117 %       120 %       112 %       117 %       135 %

 

Michael McClellan

       117 %       120 %       100 %       114 %       168 %

 

Dr. Carlo de Notaristefani

       117 %       120 %       109 %       116 %       179 %

 

Dr. Hafrun Fridriksdottir

       117 %       120 %       110 %       116 %       180 %

 

Mark Sabag

 

      

 

117

 

%

 

     

 

120

 

%

 

     

 

110

 

%

 

     

 

116

 

%

 

     

 

180

 

%

 

 

 

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The Compensation Committee then took the target award and applied the overall performance factor to determine the total 2018 annual incentive payout for the CEO and each NEO. This amount is reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table presented below under the “Additional Compensation Information” section.

 

Executive

  

Eligible Base
Salary

($)

  

 

Target
Annual
Cash
Incentive
(% of
Base
Salary)

  Target
Award ($)
   Overall
Performance
Factor
  Payout
($)

 

Kåre Schultz

 

    

 

$

 

 

2,000,000

 

 

 

    

 

 

 

 

140

 

 

%

 

   

 

$

 

 

2,800,000

 

 

 

    

 

 

 

 

135

 

 

%

 

   

 

$

 

 

3,790,360 

 

 

 

 

Michael McClellan

 

    

$

 

700,000

 

 

    

 

 

100

 

%

 

   

$

 

700,000

 

 

    

 

 

168

 

%

 

   

$

 

1,172,640 

 

 

 

Dr. Carlo de Notaristefani

 

    

 

$

 

 

836,400

 

 

 

    

 

 

 

 

100

 

 

%

 

   

 

$

 

 

836,400

 

 

 

    

 

 

 

 

179

 

 

%

 

   

 

$

 

 

1,495,232 

 

 

 

 

Dr. Hafrun Fridriksdottir

 

    

 

$

 

 

720,000

 

 

 

    

 

 

 

 

100

 

 

%

 

   

 

$

 

 

720,000

 

 

 

    

 

 

 

 

180

 

 

%

 

   

 

$

 

 

1,296,144 

 

 

 

 

Mark Sabag

 

    

 

$

 

 

605,749

 

 

 

    

 

 

 

 

100

 

 

%

 

   

 

$

 

 

605,749

 

 

 

    

 

 

 

 

180

 

 

%

 

   

 

$

 

 

1,090,467 

 

 

 

Equity-Based Compensation

Purpose: Equity-based compensation is intended to reward future performance, as reflected by the market price of our shares and/or other performance criteria, and is used to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders, as well as to attract, motivate and retain executive officers for the long term by:

 

   

providing executive officers with a meaningful interest in Teva’s share performance;

 

   

linking equity-based compensation to potential and sustained performance; and

 

   

spreading benefits over a longer performance cycle through the vesting period mechanism.

Equity-based awards: Equity-based awards are generally granted to executive officers on an annual basis, and at other times as the Compensation Committee and the Board deem appropriate, including for newly hired or promoted executive officers or due to special retention needs. Notwithstanding the foregoing, the Compensation Committee and the Board may determine with respect to a specific year that no equity-based awards will be granted to all or any particular executive officers.

Parameters: Equity-based awards are granted pursuant to Teva’s 2015 Long-Term Equity-Based Incentive Plan, and/or any other long-term incentive plan(s) that we may adopt in the future, and generally on terms and conditions provided for therein and as determined by the Compensation Committee and the Board, provided that any such terms and conditions are consistent with the following pursuant to our Compensation Policy:

 

   

Performance-based equity awards: The amount and/or vesting of performance-based awards are subject to achievement of pre-determined performance criteria. Performance measurement periods for performance-based equity awards are for specified periods that express the long-term performance goals that we seek to achieve. Following the performance measurement period, additional time-based vesting requirements may also apply. The performance vesting criteria for performance-based equity awards are based on measurable performance criteria, such as financial and/or non-financial parameters, which may be determined as an absolute parameter (e.g., EPS, TSR, share price and strategic goals) and/or a parameter that is relative to a peer group (e.g., ratio of Teva’s TSR to the peer group TSR). These types of awards may include PSUs, shares and/or other share-based awards.

 

 

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  n  

Time-based equity awards: Equity-based awards structured as time-based awards (aimed to reward long-term performance, as reflected by the market price of Teva shares) include a time-vesting period. Time-based equity awards have an overall vesting term of several years, structured in order to retain executive officers and maintain their commitment to increasing Company and shareholder value over the long term. These types of awards may include stock options, restricted stock, RSUs and/or other share-based awards.

 

  n  

Vesting of equity-based awards: The minimum vesting period of all equity-based awards, other than PSUs (if granted), is two years from the date of grant. The minimum vesting period of PSUs (if granted) is three years from the date of grant.

The monetary grant value of executive officers’ equity-based awards is determined by the Compensation Committee and the Board, taking into account, among other things, our pay mix targets, the desired mix of equity-based vehicles, the executive officer’s contribution to Company performance, desired competitive compensation levels and dilution or pool limits. When establishing the monetary grant value, the Compensation Committee and the Board also determine the mix of equity-based vehicles for each grant, which may include various types of time-based and performance-based equity-based vehicles, such as stock options, RSUs, PSUs and/or other share-based awards. The value of each type of equity-based vehicle is determined in accordance with accepted valuation and accounting principles, as they apply to the relevant type of equity-based vehicle, and might differ from the value determined for other purposes.

The mix of equity-based vehicles and the relative weight assigned to each type of equity-based vehicle out of the total equity-based grant is structured to enhance the executive officers’ commitment to increasing Company and shareholder value and is designed to encourage balanced and effective business risk-taking. The Compensation Committee and the Board may change the distribution and elements of the equity mix from time to time.

Caps on equity-based compensation pursuant to our Compensation Policy:

 

  n  

Equity budget: The Compensation Committee and the Board may set an annual budget for annual equity-based compensation granted to executive officers, based on the CEO’s recommendation. The CEO also recommends how to allocate the annual equity budget among the other executive officers, subject to approval by the Compensation Committee and the Board. In circumstances determined by the Compensation Committee and the Board (e.g., regulatory changes or significant changes in our business environment), the Compensation Committee and the Board may amend or modify the budget during the applicable period.

 

  n  

Cap at grant date: The maximum monetary grant value of the annual equity-based compensation granted to the CEO shall not exceed $6.0 million at target and to any other executive officer $3.5 million at target.

 

  n  

Cap at exercise date: The Compensation Committee and the Board may from time to time consider determining a cap for the benefit deriving from the exercise of equity-based compensation.

2018 Long-Term Equity Incentives—Annual Grant

As described above, the Compensation Committee and the Board intend for long-term equity-based compensation to reward executive officers based on our future performance, as reflected by the market price of Teva’s shares, to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders, and to attract, motivate and retain executive officers for the long term by:

 

  n  

providing executive officers with a meaningful interest in our share performance;

 

  n  

linking equity-based compensation to potential and sustained performance; and

 

 

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  n  

spreading benefits over a longer performance cycle through the vesting period mechanism.

In making determinations about 2018 long-term equity incentive grants to executive officers, the Compensation Committee and the Board considered, among other things:

 

  n  

sustained performance;

 

  n  

criticality of contributions to Teva;

 

  n  

comparison against our Peer Group;

 

  n  

role, skills, experience and development;

 

  n  

internal fairness among executive officers; and

 

  n  

pay mix.

The sizes of the grants to executive officers vary based on the factors above. The portion of executive officer compensation that is composed of these equity vehicles is “at risk” and directly aligned with shareholder value creation.

 

 

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For the 2018 long-term equity incentive grants to executive officers, the Compensation Committee and the Board used the terms and mix set forth in the following table:

 

  Type of Long-
  Term Incentive
  Vehicle

 

 

Proportion
of Long-
Term
Incentive
Grant

 

 

Vesting Schedule

 

 

Performance
Metrics
(Weighting)

 

 

Rationale for Use of Performance

Metric

 

     

 

1) 2018-2020 non-GAAP EPS (50%)

 

 

1) Leading indicator of profitability, expense control and sustained short- and long-term performance.

 

Performance

Share Units

  CEO: 50%

 

Other
NEOs:
33.3%

  Three-year cliff vesting   2) 2018-2020 Free Cash Flow (50%)  

2) Serves to focus executive officers on generating cash in the short and long term to fund operations, focuses executive officers on expense control and on improvement in working capital, and is an indicator of long-term shareholder value creation.

 

      3) 2018-2020 Relative TSR (Modifier)  

3) Strong performance as measured by the other two operating metrics is fully rewarded only if it also results in above average shareholder returns. The relative TSR modifier for the 2018 award decreases or increases the average earning percentage by up to 20% or 50%, respectively.

 

Restricted Share Units

  CEO: 25%

 

Other
NEOs:
33.3%

 

 

Three equal tranches vesting on the second, third and fourth anniversaries of the date of grant

  N/A   N/A

Stock Options

  CEO: 25%

 

Other
NEOs:
33.3%

 

 

Three equal tranches vesting on the second, third and fourth anniversaries of the date of grant

  N/A   N/A

The 2018 PSU performance measures were selected because (i) non-GAAP EPS and Free Cash Flow focus management on metrics that align with our most critical strategic priorities of servicing debt, controlling expenses and improving profitability; (ii) relative TSR is an important measure because TSR ties executive officer compensation with shareholder value creation, aligns the interests of executive officers with those of Teva and its shareholders and filters out macroeconomic and other factors that are not within management’s control; and (iii) all metrics give recipients a clear line of sight into how executing on operating measures drives the achievement of performance and earning awards. The weight of PSUs in the 2018 mix was increased to 50% for the CEO from 33.3% in 2017 to further strengthen the alignment of the CEO’s equity incentive with Company performance and to respond to shareholder feedback.

 

 

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Before the conclusion of the performance period, we do not publicly disclose our specific performance measure targets and the corresponding minimums and maximums because of the potential for competitive harm from such disclosure. These measures are competitively sensitive and would reveal information about our view of our anticipated trajectory, which is not otherwise public. The Compensation Committee and Board believe that they have set performance goals at rigorous and challenging levels so as to require significant effort and achievement by our executive officers to be attained, and that such goals have been established in light of our internal forecast as well as the macroeconomic and industry environments. After the end of the performance period, the targets and achievement relative to such targets will be disclosed.

The Compensation Committee and the Board utilize RSUs to encourage ownership and retention while immediately aligning executive officers’ interests with those of our shareholders, and stock options are meant to focus executive officers on share price appreciation.

2019 Long-Term Equity Incentives—Annual Grant

For the 2019 long-term equity incentive grants to executive officers, the Compensation Committee and the Board reviewed and re-evaluated the Company’s executive compensation program in light of the restructuring and transition that we are currently undergoing, and made the following changes to the long-term equity incentives:

 

   

increased the weight of the PSUs to 50% for all executive officers from 33.3%, to match the change made for the CEO in 2018, in order to further enhance the link between pay and performance for executive officers and the alignment of the interests of the executive officers with those of Teva and its shareholders;

 

   

changed the performance metrics from non-GAAP EPS and Free Cash Flow to non-GAAP Operating Profit and Net Debt in order to focus executive officers on long-term profitability and debt reduction objectives and to differentiate the long-term metrics from the metrics under the annual incentive plan;

 

   

established the three-year goals up front for these metrics and communicated them to grant recipients, clearly articulating the targets from the outset of the performance period; and

 

   

reduced the maximum number of PSUs that may be issued based on the relative TSR multiplier from 300% of the target number to 240% of the target number and modified the requisite relative TSR performance to trigger the maximum multiplier from the 100th percentile to at least the 75th percentile, in order to align more closely with market practice.

2018 PSU Calculation Methodology

In connection with the 2018 PSU grants, the number of shares earned by the executive officers will be determined in two steps as follows.

Company Financial Measures: There are two Company financial performance measures, 2018-2020 non-GAAP EPS and 2018-2020 Free Cash Flow, each of which is weighted 50%. In step one, for each of these two measures, the Compensation Committee and the Board determine the Company’s performance achievement percentage for each year in the three-year period and then calculates the average annual performance achievement percentage for the three-year period. The three-year average performance achievement percentage is then converted to an earning percentage as set forth below.

 

Level of Achievement of Objectives(*)

   Performance
Achievement %
   Earning
Percentage

Below Threshold

   Below 85%    0%

Threshold

   85%    25%

Target

   100%    100%

Maximum

   120%    200%

 

(*)

Linear interpolation will be used to determine the applicable earning percentage.

 

 

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The Compensation Committee then calculates the average of the earning percentages for the two performance measures.

Relative TSR Modifier: The Compensation Committee and the Board introduced a TSR modifier in the PSU design beginning in 2017. They continue to view the inclusion of Total Shareholder Return as critical because it ties executive officer compensation with the creation of shareholder value and aligns the interests of executive officers with those of Teva and its shareholders. By measuring our stock performance relative to peers, it mitigates the impact of macroeconomic factors, both positive and negative, that affect the industry and/or stock price performance and are beyond the control of management, and it provides rewards that are more directly aligned with performance through different economic cycles.

In step two, the average of the earning percentages determined in the first step is multiplied by a modifier that has been determined based on our relative TSR performance for the three-year period as set forth below. The Company’s TSR is ranked relative to our Peer Group, and the Compensation Committee and the Board believe that the Peer Group is an appropriate comparator group that is broadly representative in terms of its size, industry, geographic footprint and employee base. See “—IV. Compensation Determination Process—Compensation Peer Group and Peer Selection Process” for a list of the peer group companies used for this purpose. The use of the relative TSR modifier only applies to our PSUs and therefore earning opportunity available with equity grants differs from our annual cash incentive plan that does not use such metric.

 

Level of Achievement of Relative TSR(*)

   Relative TSR Ranking    Modifier

Threshold

   Up to 25th percentile   

80% (i.e., 20% less than unmodified

average of the earning percentages)

Target

   50th percentile    100%

Maximum

 

  

100th percentile

 

  

150%

 

(*)

Linear interpolation will be used to determine the applicable modifier.

The product of (1) the average of the earning percentages and (2) the relative TSR modifier is multiplied by the target number of PSUs granted to each of the executive officers to determine the final number of shares earned by each individual. For example, if the Company’s TSR rank is less than or equal to the 25th percentile, then the average of the earning percentages is multiplied by 80% (equivalent to a reduction of 20%) to determine the final performance factor and then multiplied by the target number of PSUs to determine the final number of earned PSUs. If the Company’s TSR rank is at the 100th percentile, then the average of the earning percentages is multiplied by 150% (equivalent to an increase of 50%) and then incorporated into the calculation.

The Compensation Committee approves and presents the performance achievement percentages, the calculation of the average earning percentage and the TSR modifier, and the determination of the number of PSUs earned by each executive officer to the Board for its review and approval.

2018 Long-Term Incentive Award Values—Annual Grant

In connection with determinations of the appropriate level of annual equity grants for 2018, the Compensation Committee and the Board took into account the factors outlined above as well as information regarding the Peer Group. In light of the restructuring and other factors, the Compensation Committee and the Board did not recommend an increase to the aggregate equity grant value to the CEO (which was in accordance with the maximum limits provided in the Compensation Policy).

 

 

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The Compensation Committee and the Board determined that it was consistent with our performance-based compensation philosophy and appropriate to structure the equity grants to executive officers such that (1) 50% for the CEO and 33% for the other NEOs would be granted in PSUs that will be earned and will vest only if we achieve specified levels of performance as measured by the performance metrics at the end of the three-year performance period and (2) 50% for the CEO and 67% for the other NEOs would be granted in equal proportions of RSUs and stock options that will vest over four years.

The Compensation Committee and the Board increased the allocation of PSUs for the CEO as compared to 2017 in order to further enhance the link between pay and performance and the alignment of the interests of the CEO with those of Teva and its shareholders. While the allocation to performance-based equity increased, the aggregate grant date fair value at target of the long-term incentives remained unchanged from 2017 for the CEO. For the other NEOs, the Compensation Committee and the Board determined to make grants in significantly higher aggregate grant date fair values at target as compared to 2017, for one year only, in an effort to enhance the motivation of the executive team as they were facing extraordinary business challenges and a recent leadership transition. The following table sets forth the 2018 annual grant date fair values at target approved by the Compensation Committee and the Board for the NEOs.

 

Executive

   PSUs ($)    RSUs ($)    Stock
Options ($)
   Total ($)  

Kåre Schultz

     $ 2,999,992      $ 1,499,985      $ 1,500,019      $ 5,999,996  

Michael McClellan

     $ 899,994      $ 899,998      $ 900,003      $ 2,699,995  

Dr. Carlo de Notaristefani

     $ 1,166,654      $ 1,166,661      $ 1,166,679      $ 3,499,994  

Dr. Hafrun Fridriksdottir

     $ 899,994      $ 899,998      $ 900,003      $ 2,699,995  

Mark Sabag

 

     $

 

866,662

 

 

     $

 

866,649

 

 

     $

 

866,685

 

 

     $

 

2,599,996  

 

 

Consistent with historical practice, the dollar value allocated to PSUs was converted to a number of units, based on the fair market value on the grant date as determined in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718. The dollar amount allocated to RSUs was converted to a number of shares using the fair market value on the grant date. The dollar amount allocated to stock options was converted to a number of shares using the Black Scholes valuation method as of the grant date.

2016-2018 Performance Share Unit Payout

In 2016, the Compensation Committee and the Board granted PSUs with performance-based vesting requirements for the three-year performance period of 2016-2018. In connection with the 2016 PSU grants, the number of shares earned by the NEOs who were executive officers at the time of the grants has been determined in two steps as follows.

 

 

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The 2016 PSU grants were subject to two performance measures, 2016-2018 Net Revenue and 2016-2018 non-GAAP Operating Profit, subject to adjustments for the effect of changes in currency exchange rates, each of which was weighted 50%. In step one, for each of these two measures, the Compensation Committee and the Board determined the Company’s actual performance and the corresponding performance achievement percentage for each year in the three-year period, and then calculated the average annual performance achievement percentage for the three-year period. The Compensation Committee and the Board then calculated the weighted average performance achievement of the two three-year measures to determine the overall three-year performance achievement percentage as set forth below.

 

Weighting

   Performance Metric    Year   

Target
($ in millions)

(excl. exch.
rate effects)

   Actual
Results
($ in millions)
   %  
Achievement  
            2016      $ 22,228      $ 21,903        98.54%  

50%

       Net Revenue        2017      $ 24,173      $ 22,385        92.60%  
            2018      $ 18,462      $ 18,854        102.12%  
                        

 

 

 
            Average                  97.75%  
            2016      $ 7,010      $ 6,847        97.67%  

50%

       Non-GAAP Operating        2017      $ 7,257      $ 6,073        83.68%  
       Profit        2018      $ 4,277      $ 4,723        110.44%  
                        

 

 

 
            Average                  97.26%  

Weighted Average:

 

                                                  

 

97.51%  

 

 

In step 2, the overall three-year performance achievement percentage was then converted to a PSU earning percentage as set forth below. If the overall performance achievement percentage was below the threshold, then the earning percentage would be zero (and the individual would not receive any shares in respect of the PSUs granted). If the overall performance achievement percentage was between the threshold and maximum, the earning percentage would be determined by linear interpolation. If the earning percentage was above the maximum, the maximum earning percentage would be applied.

 

Level of Achievement of Performance Measures(*)

   Performance
Achievement %
  PSU Earning %

Threshold

   90% or less   0%

Target

   100%   100%

Maximum

 

   120%

 

  150%

 

 

(*)

Linear interpolation will be used to determine the applicable earning percentage.

 

 

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The Compensation Committee and the Board approved the achievement relative to target performance measures, the calculation of the earning percentage, and the determination of the number of earned PSUs. The overall three-year performance achievement percentage of 97.51% resulted in an earning percentage of 75.09%. Based on this outcome, the NEOs earned Teva shares in respect of their 2016-2018 PSU awards as follows:

 

Executive

   Target Award
(# of PSUs)
     Payout
Factor
    

Final
Award

(# of PSUs)

     Realizable
PSU Value as
% of Target
PSU Value (1)
 

Kåre Schultz (2)

     N/A        N/A        N/A        N/A  

Michael McClellan (2)

     N/A        N/A        N/A        N/A  

Dr. Carlo de Notaristefani

     20,822        75.09%        15,636        22%  

Dr. Hafrun Fridriksdottir (2)

     N/A        N/A        N/A        N/A  

Mark Sabag

 

    

 

12,492

 

 

 

    

 

75.09%

 

 

 

    

 

9,381

 

 

 

    

 

22%

 

 

 

 

(1)

The realizable PSU value was calculated by multiplying the number of earned shares by the stock price per share on the last trading day of 2018. See “—I. Executive Summary—Key Aspects of 2018 Executive Compensation” for further details on the realizable pay analysis.

(2)

Because it was prior to their appointments as executive officers, we did not grant Mr. Schultz, Mr. McClellan or Dr. Fridriksdottir PSUs as part of the 2016 equity award.

Strategic Transformation, Promotion and Other One-Time Grants

Following the start of the previously-disclosed substantial restructuring of the Company, the Compensation Committee and Board’s view was that it was imperative to stabilize our business and maintain management continuity, expertise and experience in an effort to foster the long-term success of the Company. To this effect, the Compensation Committee and the Board determined to grant strategic transformation equity awards to certain NEOs. In May 2018, Teva made such grants of PSUs to Dr. de Notaristefani (70,000), Dr. Fridriksdottir (30,000) and Mr. Sabag (30,000). The PSUs have a performance period and performance metrics that correspond to the term of the restructuring plan and for one year thereafter, and are the same as the PSUs included in the 2018 annual grants (50% 2018-2020 non-GAAP EPS and 50% 2018-2020 Free Cash Flow, with a relative TSR modifier), as these terms tie the earning of such awards to the leadership of these key individuals and the performance of the Company during this crucial three-year period. The Compensation Committee and the Board do not generally intend to provide one-time grants except in a very judicious and limited manner in rare circumstances as warranted by the situation. The Compensation Committee and the Board viewed these grants to the NEOs as a special and exceptional nonrecurring event to meet the Company’s needs during the period of restructuring, transition and path forward as a business. The Compensation Committee and the Board continue to prudently and carefully evaluate our compensation program to ensure that it accounts for the current transitional stage, aligns the interests of executive officers and shareholders and links their pay to the Company’s performance.

Pursuant to a legacy Actavis Generics retention plan that we assumed in connection with our acquisition of Actavis Generics in 2016, Dr. Fridriksdottir had been granted a cash award of $1,000,000. Half of the cash award was paid in December 2018 and the remaining half will be paid in December 2019. In November 2016, after the closing of our acquisition of Actavis Generics, we made a special cash retention award to Dr. Fridriksdottir of $300,000 due to her significance and key role during the transition period and the importance of securing her services after the acquisition. We paid half of the cash award in March 2018 and the remaining half was paid in March 2019. In December 2016, we made a cash retention award to Dr. Fridriksdottir of $750,000. We paid one quarter of the cash award in January 2019 and will pay the remaining three quarters in January 2020. These awards were granted to Dr. Fridriksdottir prior to her appointment as an executive officer.

 

 

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As previously disclosed, in connection with the promotion of Mr. McClellan to the position of Interim CFO in July 2017 (before his promotion to CFO in November 2017), we awarded Mr. McClellan a one-time promotion cash award of $202,500 in recognition of his increased responsibility. Half of the award was paid in November 2017, and the remaining half was paid in February 2018. In addition, as previously disclosed, pursuant to a broad retention program in September 2017 to secure the services of key employees during a period of uncertainty for our Company, we granted Mr. McClellan a cash award totaling $67,500. Half of the cash award was paid in September 2018 and the remaining half will be paid in September 2019. All payments are subject to continued employment through the applicable payment dates. These awards were granted to Mr. McClellan while he served as Interim CFO.

Information regarding the previously-disclosed sign-on cash grants for Mr. Schultz is provided in the “Leadership Transitions” section below.

Leadership Transitions

Previously-Disclosed Appointment of Mr. Kåre Schultz as CEO

As previously disclosed in last year’s proxy statement, in September 2017, our Board successfully completed its global search process (with the assistance of a search firm) for our CEO when it appointed Kåre Schultz to the position. In its search, the Board sought a leader with extensive global pharmaceutical experience and a strong track record in corporate turnarounds, as well as in driving growth and leading international expansion. Mr. Schultz is a seasoned leader in the health care industry with an extensive background leading global companies’ financial and restructuring initiatives.

From 2015 to 2017, Mr. Schultz served as the President and CEO of H. Lundbeck A/S, which he joined as the company was facing the loss of critical patents. Prior to joining Lundbeck, Mr. Schultz worked for nearly three decades at Novo Nordisk, where he served in a number of leadership roles, including Chief Operating Officer, Vice President in Product Supply and Director of Product Planning and Customer Services in the Diabetes Care Division.

Based on this outstanding profile, our Board selected Mr. Schultz as the best candidate to lead Teva and appointed Mr. Schultz as President and CEO effective November 1, 2017. He also joined the Board at that time.

As described above in “2018 Select Business Highlights,” in 2018:

 

   

The execution of our substantial restructuring plan resulted in a significant cost base reduction of $2.2 billion and is on track to achieve a total reduction of $3.0 billion by the end of 2019.

 

   

We continued our program to optimize our generics portfolio and continued a thorough review of all research and development programs.

 

   

We received FDA approval for AJOVY for the preventive treatment of migraine, and executed a successful launch. Sales of AUSTEDO, which is used for involuntary movements associated with Huntington’s disease, grew strongly, and multiple sclerosis drug COPAXONE demonstrated its durability by continuing to maintain its market share despite a recently-available generic.

 

   

We reduced our net debt by 14% to $27.1 billion.

As previously disclosed, the terms of the employment agreement with Mr. Schultz were negotiated in order to induce him to accept the Board’s offer to become our CEO at this critical time, including relocation to our headquarters in Israel. The Board was mindful of the challenges currently facing our Company in its various business segments, product lines and markets, the advent of generic competition for one of our key branded specialty products, the fierce competition for talented executives in the pharmaceutical industry

 

 

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and the extreme pressure on, and vast duties of, the leader of an international organization of the size and complexity of Teva in approving the components of the compensation package, including the annual base salary, target annual incentive, annual equity grants, and inducement equity grants and cash awards to Mr. Schultz, as well as economic terms associated with relocating to Israel. The Board also took into account the difficulty not just in identifying an individual with the desired skills and experience, but also retaining the person throughout the period of transition and significant change being driven by the Board. Accordingly, the Board, with the assistance of its independent compensation consultant, developed a compensation package that considered pay structures for CEOs at peer companies, and which includes pay that depends on long-term Company performance as well as the opportunity to accumulate a significant ownership interest in Teva upon the creation of sustained shareholder value.

In light of all of these factors, we entered into an employment agreement with Mr. Schultz which provides for an employment term of five years, subject to automatic renewal for subsequent one-year periods (or until the second anniversary following a change in control of the Company, if later than the otherwise applicable term end date) until a notice of non-renewal is provided or other termination circumstances occur.

Under the employment agreement, Mr. Schultz received an annual base salary of $2 million, a performance-based target annual incentive opportunity equal to 140% of his annual base salary (and a maximum opportunity of 200% of his annual base salary), annual long-term equity incentives with a total target grant date fair value of $6 million with vesting terms similar to other senior executive officers, a meaningful portion of which are performance-based, and the same employee benefits as are provided to similarly situated senior executives of the Company.

Upon commencing employment on November 1, 2017, Mr. Schultz received the following sign-on equity awards over the five year term of the agreement, which are designed to align his interests with those of Teva and its shareholders over the long term (like our stock ownership guidelines to which he is subject, which the Board increased in 2019): (i) a restricted share unit award with a grant date fair value of $5 million (as determined based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire), which will vest and settle in equal installments on the third, fourth and fifth anniversaries of the employment commencement date (the “Effective Date”); and (ii) two sign-on performance share unit awards, each with a target grant date fair value of $7.5 million (as determined based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire), which will be earned based on the achievement of performance goals related to the absolute increase in the price of Teva’s shares over three- and five-year periods following the Effective Date, which range from a 16% increase to a 158% increase for the three-year performance period and from a 28% increase to a 385% increase for the five-year period, and generally vest on the third, fourth and fifth anniversaries of the Effective Date (in the case of the award with a three-year performance period) and on the fifth anniversary of the Effective Date (in the case of the award with a five-year performance period).

As the grant date value of equity awards for accounting purposes depends on, among other things, stock price, the actual grant date fair values of these sign-on equity awards that appear in our Summary Compensation Table for 2017 are lower than the intended target values described in the preceding paragraph since the number of units was set based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire, but the grant date fair value of the awards for accounting purposes were determined when they were actually granted. The Compensation Committee believed that fixing the number of units was appropriate and consistent with the aforementioned focus on aligning executives’ compensation with long-term shareholder value creation.

In addition, Mr. Schultz received a sign-on cash award of $20 million, which vested and was paid in two equal installments three and six months following the Effective Date (February 2018 and May 2018), which is why this award, which was a contractual obligation originally disclosed in connection with the hiring of

 

 

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Mr. Schultz in 2017, is disclosed in our 2018 Summary Compensation Table elsewhere in this Proxy Statement. This sign-on cash award and the sign-on equity awards described above were part of the employment agreement with Mr. Schultz in order to induce him to accept the Board’s offer to become our CEO at this critical time, including relocation to our headquarters in Israel, and do not represent any type of ongoing or typical award.

Consistent with our compensation objective to compete with global companies to attract and retain highly talented professionals with the necessary capabilities, and in light of some of the challenges of recruiting superior executive talent to work for a company headquartered in the Middle East, the total compensation package for Mr. Schultz includes certain benefits and perquisites in order to be competitive with the companies with which we vie for talent. Mr. Schultz and many of our most senior executive officers are located at our corporate headquarters outside Tel Aviv. Having our CEO and many of our leadership team together in our corporate office and interacting in person on a regular basis facilitates the development and the effective and efficient execution of our strategy.

To recruit and induce Mr. Schultz, a citizen of Denmark who had been working for a Danish company, to his position at our headquarters in Israel, the Compensation Committee and the Board determined to provide certain expatriate relocation benefits, which are generally provided to expatriates under our relocation policy and those of other companies in our industry. The purpose of these benefits is to keep Mr. Schultz “economically neutral” for the costs associated with living and working outside his home country, with the goal that he not be financially advantaged or disadvantaged as a result of relocating to Israel and incurring associated taxes. These benefits include a housing allowance, transportation support, home leave and global health insurance. Additionally, as we do for all expatriate employees under our relocation policy, we provide tax gross ups on relocation benefits and ongoing assignment allowances, and tax preparation services, and view these as a necessity in connection with inducing a CEO with Mr. Schultz’s skill set and experience to become Teva’s CEO and lead the turnaround effort at this critical time. The amounts reported in the 2018 Summary Compensation Table reflect the costs associated with providing such items for a full year (the 2017 Summary Compensation Table reflected that Mr. Schultz began employment on November 1, 2017). The Compensation Committee and the Board believe that these benefits are reasonable and consistent with our overall compensation objective to compete with global companies to attract, retain and relocate highly talented professionals with the necessary capabilities. The Compensation Committee and the Board viewed these benefits and perquisites as facilitating the ability of Mr. Schultz to maximize his focus on his very demanding duties as CEO.

Supplemental Non-GAAP Income Data

We utilize certain non-GAAP financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize the non-GAAP measures:

 

   

our executives and Board use non-GAAP measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of our executives;

 

   

our annual budgets are prepared on a non-GAAP basis; and

 

   

senior executive’s annual compensation is derived, in part, using these non-GAAP measures. While qualitative factors and judgment also affect annual cash incentives, the principal quantitative element in the determination of the cash incentives is various performance targets tied to the work plan.

Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide this non-GAAP data because our executives believe that the data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.

 

 

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VI. Additional Compensation Policies and Practices

Equity Ownership Policy

Teva and its shareholders are best served by executives that manage the business with a long-term perspective. Therefore, we adopted share ownership guidelines, as we believe share ownership is an important tool to strengthen the alignment of interests among our executive officers and our shareholders, to reinforce executive officers’ commitment to Teva and to demonstrate Teva’s commitment to sound corporate governance. The policy provides that Teva expects the applicable required level of equity ownership to be satisfied by our executive officers within five years of the later of the date the guidelines were adopted or the date of appointment as an executive officer. If an executive officer’s holding requirement increases because of a change in annual base salary, the executive officer is expected to achieve the higher holding requirement within one year of the date of the increase.

The Compensation Committee receives periodic reports of the ownership achieved by each executive officer. For purposes of determining compliance with the guidelines, the value of an executive officer’s share holdings is based on the closing price of Teva’s American Depositary Shares reported on the principal U.S. national securities exchange on which the shares are listed on the last trading day of the year.

Below we describe the ownership guidelines in effect in 2018:

 

Current Position

   Required Salary  
Multiple  

CEO

       4x

All other executive officers

       2x

The value of all of the following types of Teva shares or stock options owned by or granted to an executive officer qualifies toward the attainment of the target multiple of pay:

 

   

shares owned outright by the executive officer or jointly with, or separately by, his or her immediate family members residing in the same household;

 

   

shares held in a grantor trust or under a similar arrangement for the economic benefit of the executive officer or his or her immediate family members residing in the same household;

 

   

shares held in any Teva retirement plan;

 

   

time-based vesting restricted shares and restricted share units issued as part of the executive officer’s long-term compensation, whether or not vested;

 

   

the target number of shares subject to any performance shares or units issued as part of the executive officer’s long-term compensation; and

 

   

the in-the-money value of vested but unexercised in-the-money stock options.

 

 

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Changes to Equity Ownership Policy in 2019

To further strengthen the alignment of interests among our executive officers and our shareholders, starting in 2019, the Compensation Committee and the Board modified the equity ownership for the CEO and executive officers and introduced an equity ownership guideline for directors. Below we describe the ownership guidelines in effect beginning in 2019:

 

Current Position

   Required Salary
Multiple

CEO

   6x

All other executive officers

   3x

Directors

 

   5x annual cash fee(*)

 

(*)

Excluding committee fees.

In addition, the Compensation Committee and the Board modified the definition of what can be included to satisfy the guidelines by removing unvested PSUs.

The policy provides that Teva expects the applicable required level of equity ownership to be satisfied by our executive officers within five years and directors within six years of first becoming subject to these guidelines.

Clawback Policy

Our executive officers are required to return any compensation paid to them on the basis of results included in financial statements that turned out to be erroneous and were subsequently restated, during the three-year period following filing thereof. In such case, compensation amounts will be returned net of taxes that were withheld thereon, unless the executive officer has reclaimed or is able to reclaim such tax payments from the relevant tax authorities (in which case the executive officer will also be obligated to return such tax amounts). We will publicly disclose the general circumstances of any repayment or forfeiture of compensation from our executive officers under our clawback policy, and the aggregate amounts repaid or forfeited, if required by applicable law or regulation, or if we have previously disclosed the underlying event giving rise to the repayment or forfeiture, unless such disclosure would, as determined by our Compensation Committee or Board, raise legal or privacy concerns with respect to those individuals involved or would not be in the best interests of our shareholders. In addition, in the event that it is discovered that an executive officer engaged in conduct that resulted in a material inaccuracy in Teva’s financial statements or caused severe financial or reputational damage to Teva, or in the event that it is discovered that an executive officer breached confidentiality and/or non-compete obligations to Teva (as determined by the Compensation Committee), the Compensation Committee shall have broad remedial and disciplinary authority. Such disciplinary action or remedy would vary depending on the facts and circumstances, and may include, without limitation, (i) termination of employment, (ii) initiating an action for breach of fiduciary duty, and (iii) seeking reimbursement of performance-based or incentive compensation paid or awarded to the executive officer. The Compensation Committee will determine applicable terms to enforce repayment of clawback amounts and may modify this clawback policy in accordance with applicable law and regulations.

Anti-Hedging and Pledging Policies

Directors and executive officers are prohibited from hedging their equity-based awards and any other Teva securities held by them (whether they are subject to transfer restrictions or not), such as purchasing or selling options on Teva securities, purchasing or selling puts, calls, straddles, equity swaps or other derivative securities linked to Teva’s securities, or engaging in “short” sales on Teva securities. This policy applies to each director and each executive officer until one year after the director’s or executive officer’s termination or retirement.

 

 

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Directors and executive officers are prohibited from pledging or using their equity-based awards and any other Teva securities held by them (whether they are subject to transfer restrictions or not) as collateral for loans.

Tax Deductibility

Prior to the Tax Cuts and Jobs Act (the “TCJA”) signed into law in December 2017, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally limited the corporate tax deduction for compensation paid to the CEO and the three other most highly compensated executives (other than the CFO) to $1.0 million annually, unless certain requirements were satisfied. To maximize the corporate tax deduction, incentive plans were designed so that certain awards under those plans would constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Code and preserve our corporate tax deductibility for those amounts.

The TCJA contained significant changes to Section 162(m) of the Code, including the elimination of the performance-based compensation exception to Section 162(m) for corporate tax years beginning after December 31, 2017 and an expansion of employees covered by the provision. Section 162(m) now covers the CFO or any individual who served as the CFO in the relevant taxable year. In addition, once an individual becomes a covered employee under Section 162(m) for any taxable year beginning after December 31, 2016, this status carries forward to all future years, even in the event of the employee’s termination or death. The act provides limited transition relief for certain “performance-based” compensation, specifying that compensation payable pursuant to a written binding contract which was in effect on November 2, 2017 and which was not modified in any material respect on or after that date will remain eligible for the “performance-based” pay exception to Section 162(m) (i.e., may remain deductible even if in excess of $1 million). The U.S. Internal Revenue Service has provided some guidance on the application of the transition relief to specific situations. However, given the changes to Section 162(m), we expect that the U.S.-based tax deductibility of performance-based compensation in excess of $1.0 million will be less of a consideration for us when designing and implementing our executive officers’ compensation program in future years.

Other Benefits and Perquisites

We generally provide to our executive officers the same benefits that are provided to all employees, including certain retirement benefits, health and welfare benefits, and other benefits. In addition, our executive officers are provided with certain additional benefits, intended to be competitive with the practices of our peer companies.

Our Compensation Policy provides that:

Benefit plans and perquisites have three main objectives:

 

   

Compliance with legal requirements to provide certain benefits that are mandatory under applicable law (e.g., paid vacation, sick leave and pension plans);

 

   

Attracting, motivating and retaining high level professionals; and

 

   

Enabling recruitment of executive officers from various locations and their relocation.

Benefit plans and perquisites are intended to supplement cash compensation and often involve non-monetary rewards, coverage of certain business-related expenses, insurance, pension and savings plans and other deferred monetary savings. These benefits and perquisites may vary depending on geographic location and other circumstances. Global, regional and local units may develop their own benefit plans and procedures, consistent with Teva’s principles and guidelines and subject to any required Company approvals. Benefits and perquisites may include, in addition to benefits that are mandated by

 

 

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applicable law and/or generally provided to other employees (including related costs and expenses): car, transportation and accommodations, telecommunication devices, media and computer equipment and expenses, travel and relocation (including family-related expenses, such as tuition and commuting) and life and medical insurance and benefits (including executive officers’ families).

Health and Welfare Benefits

We offer health and welfare benefits to all eligible employees, including all executive officers, which are tailored to each location’s competitive market. Health and welfare benefits may include medical, dental, prescription drug, vision, life insurance, accidental death and dismemberment, short- and long-term disability coverage and an employee assistance program.

Retirement and Other Local Benefits

Israel

Israeli law generally requires severance pay equal to one month’s salary for each year of employment upon the termination of an employee’s employment due to retirement, death, termination without cause (and other circumstances as defined under Israeli law). We make monthly contributions on behalf of our Israel-based executive officers to a pension plan known as Managers’ Insurance or to a Pension Fund. These funds provide a combination of pension allowance and/or insurance and severance pay benefits to the executive officers. We contribute 7.5% of the monthly salary to the pension component (including disability insurance) and 8.33% of the monthly salary to the severance component and the employee contributes an amount between 6% and 7% of salary to the pension component. These contributions are on account of Teva’s obligation to pay severance upon termination as referenced above. Our CEO is entitled to similar contributions on behalf of the Company as pension contribution and on account of severance. Accordingly, a substantial part of our statutory severance obligation is covered by these monthly contributions.

Generally, in addition, our Israel-based executive officers (excluding the CEO), are entitled to participate in a study fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her monthly salary to the study fund and Teva contributes 7.5% of his or her monthly salary to this fund.

North America

Our North American subsidiaries mainly provide various defined contribution plans for the benefit of their employees. Under these plans, contributions are based on specified percentages of pay. In addition, Teva USA offers a supplemental deferred compensation plan to eligible employees. The plan is a nonqualified plan which is intended to work as a complement to the qualified 401(k) Retirement Savings Plan. The plan has been designed to address the “retirement gap” that many highly compensated individuals face, primarily due to IRS imposed limits on qualified Plans and IRAs. Finally, certain executive officers located in the United States participate in a defined contribution supplemental executive retirement plan. No new executive officers are enrolled in this plan.

Expatriate Benefits / International Assignment and Relocation Benefits

Teva provides benefits to our employees, who either accept an expatriate assignment or relocate internationally. The benefits are designed to provide ongoing assignment management, where applicable, and physical relocation support services. These benefits can vary depending on the nature of the assignment or relocation, but generally include a housing allowance, transportation support, a cost of living allowance (where applicable), home leave, global health insurance, and company paid education for approved dependents in locations where public education is not suitable. Additionally, we provide tax preparation and tax support services, dependent on the nature of the assignment (e.g., tax equalization for

 

 

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home-based assignments or tax gross up of relocation benefits and ongoing assignment allowances for host-based assignments), as well as immigration services to manage compliance within all global jurisdictions. The purpose of these benefits is to keep our expatriate employees “economically neutral” for the costs associated with living and working outside their home country, with the goal that they are not financially advantaged or disadvantaged as a result of relocating to another country and incurring associated taxes.

Details regarding benefits and perquisites specific to each NEO can be found in the footnotes to the Summary Compensation Table set forth below under “Additional Compensation Information.”

Compensation Committee Report

The Compensation Committee has reviewed and discussed this “Compensation Discussion and Analysis” section of this Proxy Statement with our executives. Based upon this review and discussions, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” be included in this Proxy Statement.

Members of the Compensation Committee:

Rosemary A. Crane, Chair

Gerald M. Lieberman

Nechemia (Chemi) J. Peres

 

 

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ADDITIONAL COMPENSATION INFORMATION

2018 Summary Compensation Table

 

   Name and Principal

   Position

 

 

Year

 

   

Salary

($) (1)

 

   

Bonus
($) (2)

 

   

Stock
Awards
($) (3)

 

   

Option
Awards
($) (4)

 

   

Non-Equity
Incentive Plan
Compensation
($) (5)

 

   

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)

 

 

All Other
Compensation
($) (6)

 

   

Total ($) 

 

 

 

Kåre Schultz

President and

Chief Executive

Officer

 

 

 

 

 

2018

 

 

 

 

 

 

2,000,000

 

 

 

 

 

 

20,000,000

 

 

 

 

 

 

4,499,977

 

 

 

 

 

 

1,500,019

 

 

 

 

 

 

3,790,360

 

 

 

 

0

 

 

 

 

679,519

 

 

 

 

 

 

32,469,875 

 

 

    2017       333,333       0       14,229,808       2,000,009       0     0     464,591       17,027,741   
                 

 

Michael McClellan

Executive Vice

President, Chief

Financial Officer

 

 

 

 

2018

 

 

 

 

 

 

700,000

 

 

 

 

 

 

135,000

 

 

 

 

 

 

1,799,992

 

 

 

 

 

 

900,003

 

 

 

 

 

 

1,172,640

 

 

 

 

0

 

 

 

 

238,375

 

 

 

 

 

 

4,946,010 

 

 

    2017       397,058       101,250       199,260       195,515       0     0     211,090       1,104,173   
                 

 

Dr. Carlo de Notaristefani

Executive Vice

President, Global

Operations

 

 

 

 

 

2018

 

 

 

 

 

 

836,400

 

 

 

 

 

 

0

 

 

 

 

 

 

3,549,915

 

 

 

 

 

 

1,166,679

 

 

 

 

 

 

1,495,232

 

 

 

 

0

 

 

 

 

194,294

 

 

 

 

 

 

7,242,520 

 

 

    2017       836,400       0       2,569,720       866,688       0     0     189,551       4,462,359   
    2016       835,832       0       1,074,937       1,075,070       872,532     0     191,766       4,050,137   
                 
                 

 

Dr. Hafrun Fridriksdottir

Executive Vice

President, Global

Research and

Development

 

 

 

 

2018

 

 

 

 

 

 

720,000

 

 

 

 

 

 

650,000

 

 

 

 

 

 

2,321,392

 

 

 

 

 

 

900,003

 

 

 

 

 

 

1,296,144

 

 

 

 

0

 

 

 

 

87,492

 

 

 

 

 

 

5,975,031 

 

 

    2017       696,346       900,000       999,957       500,047       535,000     0     77,492       3,708,842   
                 
                 
                 

 

Mark Sabag

Executive Vice

President, Global

Human Resources

 

 

 

 

 

2018

 

 

 

 

 

 

605,749

 

 

 

 

 

 

0

 

 

 

 

 

 

2,254,711

 

 

 

 

 

 

866,685

 

 

 

 

 

 

1,090,467

 

 

 

 

0

 

 

 

 

427,724

 

 

 

 

 

 

5,245,336 

 

 

    2017       604,637       0       1,066,630       533,375       0     0     317,108       2,521,750   
                 
                                                                   

Salary

 

(1)

Mr. Schultz commenced employment with the Company on November 1, 2017. Mr. McClellan was appointed Executive Vice President, CFO on November 27, 2017, after having served as Interim CFO since July 2017. Dr. Fridriksdottir was appointed Executive Vice President, Global R&D, on November 27, 2017, after having been appointed as Executive Vice President, President of Global Generics R&D in February 2017. The Company paid the salary of Mr. Sabag in Israeli shekels. The U.S. dollar amount in the table above was converted from Israeli shekels using a 2018 monthly average exchange rate for the month of each salary payment, ranging from 3.42 to 3.75 shekels per U.S. dollar and a 2017 monthly average exchange rate for the month of each payment, ranging from 3.50 to 3.82 shekels per U.S. dollar.

Bonus

 

(2)

Mr. Schultz received a sign-on cash award that was paid in two installments in 2018, as originally disclosed in connection with the hiring of Mr. Schultz in 2017. In connection with the promotion of Mr. McClellan to the position of Interim CFO in July 2017 (before his appointment as Executive Vice President, CFO in November 2017), the Company awarded Mr. McClellan a one-time promotion cash award. The 2018 amount reflected in the table above represents half of the full cash award for Mr. McClellan ($101,250) as well as half of an additional retention award granted in September 2017 ($33,750). Dr. Fridriksdottir was entitled to receive payment of a portion of a retention award Teva assumed pursuant to a legacy Actavis Generics retention plan, and the Company fulfilled its assumed obligation to Dr. Fridriksdottir under the plan during 2018 ($500,000). In addition, the 2018 amount reflected in the table above for Dr. Fridriksdottir includes half of an additional retention award granted in November 2016 in connection with the acquisition of Actavis Generics ($150,000).

Stock Awards

 

(3)

The amounts shown in the Stock Awards column represent the aggregate grant date fair value of the Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”) awarded to our NEOs, computed in accordance with FASB Accounting Standards Codification Topic 718 (“Topic 718”). Valuations of PSUs and RSUs were determined based on the fair market value of a Teva share on the grant date, less the net present value of dividends, and by applying a discount factor for PSUs. Valuations of sign-on PSUs granted to Mr. Schultz were determined using a Monte Carlo simulation valuation model. For information regarding

 

 

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  assumptions, factors and methodologies used in our computations pursuant to Topic 718, see note 14c. to our consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2018. For more information on these and other share awards granted during 2018, see the table entitled “2018 Grants of Plan-Based Awards” and related narrative and footnotes.

The grant date fair value of PSUs displayed above is determined based upon achievement of performance at “target” level, which is the probable outcome of the performance metrics associated with each award of PSUs. If performance were to be achieved at “maximum” level, the grant date fair value of the 2018 PSU awards as of the respective grant dates would have been as follows: Mr. Schultz: $8,999,976; Mr. McClellan: $2,699,983; Dr. de Notaristefani: $7,149,763; Dr. Fridriksdottir: $4,264,183; and Mr. Sabag: $4,164,185.

Options

 

(4)

The amounts shown above in the Option Awards column represent the aggregate grant date fair value of share options computed in accordance with Topic 718. Valuations of options were determined using the Black-Scholes option pricing model. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see note 14c. to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018. For more information regarding options granted during 2018, see the table entitled “2018 Grants of Plan-Based Awards” and related narrative and footnotes.

Non-Equity Incentive Awards

 

(5)

The amounts shown in the Non-Equity Incentive Plan Compensation column are comprised of amounts paid in respect of the executive officer annual incentive plan, as determined by the Compensation Committee and the Board in accordance with the plan and the awards thereunder. Payments pursuant to the executive officer annual incentive plan are generally made early in the year following the year in which they are earned.

The Company paid the amount reported in 2018 for Mr. Sabag in Israeli shekels. The 2018 U.S. dollar amount in the table above was converted from Israeli shekels using a 2018 annual average exchange rate of 3.59 shekels per U.S. dollar.

All Other Compensation

 

(6)

 

 

Name

 

 

 

Defined
Contribution
and Israeli
Separation
Plan
Contributions
($)

(a)

 

 

 

Automobile
($)

(b)

 

 

 

Housing
and
Relocation
Expenses
and
Allowances
($)

(c)

 

 

 

Tax
Gross-Ups
($)

(d)

 

 

 

Study
Funds
($)

(e)

 

 

 

Other
($)

(f)

 

 

 

Total

($)

 

 

Kåre Schultz

 

   

 

 

 

 

316,172

 

 

 

   

 

 

 

 

90,076

 

 

 

   

 

 

 

 

221,363

 

 

 

   

 

 

 

 

48,411

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

3,497

 

 

 

   

 

 

 

 

679,519

 

 

 

 

Michael McClellan

 

   

 

 

 

 

61,729

 

 

 

   

 

 

 

 

32,824

 

 

 

   

 

 

 

 

141,325

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

2,497

 

 

 

   

 

 

 

 

238,375

 

 

 

 

Dr. Carlo de Notaristefani

 

   

 

 

 

 

153,676

 

 

 

   

 

 

 

 

39,538

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

1,080

 

 

 

   

 

 

 

 

194,294

 

 

 

 

Dr. Hafrun Fridriksdottir

 

   

 

 

 

 

62,412

 

 

 

   

 

 

 

 

24,000

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

1,080

 

 

 

   

 

 

 

 

87,492

 

 

 

 

Mark Sabag

 

   

 

 

 

 

96,122

 

 

 

   

 

 

 

 

41,407

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

47,752

 

 

 

   

 

 

 

 

45,431

 

 

 

   

 

 

 

 

197,012

 

 

 

   

 

 

 

 

427,724

 

 

 

The U.S. dollar amounts in the table above were converted from Israeli shekels, where needed, using the relevant 2018 monthly average exchange rates of 3.42 to 3.75 Israeli shekels per U.S. dollar.

 

  (a)

Amounts disclosed in this column reflect Company contributions and/or payments related to tax-qualified and non-qualified retirement plans and Israeli separation contributions, which include pension and severance, pursuant to Israeli law.

  (b)

Amounts disclosed in this column reflect automobile allowances, participation in the Company’s car lease program, or use of a Company car and/or reimbursement of non-business automobile expenses.

  (c)

Amounts disclosed in this column reflect expenses related to relocation such as housing accommodation costs for Mr. Schultz ($107,507) and Mr. McClellan ($78,111), travel costs for Mr. Schultz ($78,607) and Mr. McClellan ($19,393), general allowance payments, tax services and other related costs.

  (d)

Amounts disclosed in this column reflect tax gross-ups paid to our NEOs as follows: Mr. Schultz—gross-ups are provided for the income associated with accommodation in Israel, travel costs associated with travel allowance, other items related to his relocation (paid in accordance with Teva’s relocation policy), and costs associated with the Company-provided automobile and Company-provided cell phone; Mr. Sabag—gross-ups are provided for costs associated with the Company leased automobile and Company-provided cell phone, and other eligible expenses. In addition, gross-ups are provided to Mr. Schultz and Mr. Sabag for miscellaneous fringe benefits, as are generally provided to other eligible employees in Israel.

 

 

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  Subsequent to the date that our 2018 proxy statement was filed, a revision was made to the 2017 gross-up value for Mr. McClellan. The updated value is reflected in the 2017 all other compensation value in the Summary Compensation Table above.
  (e)

Amounts disclosed in this column reflect a Company contribution equal to 7.5% of the applicable NEO’s annual base salary to Study Fund (savings fund) maintained for Israel-based NEOs (except Mr. Schultz), as provided to other eligible employees in Israel.

  (f)

Amounts disclosed in this column reflect a one-time payout of accrued vacation ($186,030) pursuant to a Company initiative applied to Israel-based employees in connection with setting a cap on vacation accrual and reimbursement of eligible expenses for Mr. Sabag, life insurance premium payments made by the Company on behalf of the NEOs, and miscellaneous cash fringe benefits provided generally to all eligible employees in applicable countries, such as a children’s education allowance and recognition awards.

Employment Agreements

We have entered into employment agreements with all of our NEOs that provide for, among other things, the term of employment, the position and duties, the compensation and benefits payable during the term of the agreement and certain restrictive covenants. The agreements also set forth the terms in the event that the NEO’s employment is terminated under various conditions. The material provisions pertaining to termination of employment of the NEOs are set forth below under “—2018 Potential Payments Upon Termination or Change in Control.”

Kåre Schultz

On September 7, 2017, we entered into an employment agreement with Mr. Schultz to serve as our CEO. He is eligible for benefit plans provided to similarly situated executive officers, including medical, dental, group life and other programs, pension and severance contributions pursuant to Israeli law, relocation benefits in accordance with our policy, housing reimbursement up to 40,000 Israeli shekels per month ($11,142 using a 2018 average monthly exchange rate of 3.59 shekels per U.S. dollar) and personal travel reimbursement up to $100,000 per year. Under the agreement, Mr. Schultz is also provided with a company car. For a summary of the material terms of Mr. Schultz’s employment agreement, see “Compensation Discussion and Analysis—V. Components of Our Compensation Program—Leadership Transitions—Previously-Disclosed Appointment of Mr. Kåre Schultz as CEO” above. The agreement also contains noncompetition (except in the event of expiration of his term) and nonsolicitation covenants for 24 months after the term of the agreement, a nondisparagement covenant for 10 years after the term of the agreement, and an assignment of inventions.

Michael McClellan

Effective as of November 27, 2017, we entered into an executive employment agreement with Mr. McClellan. The agreement provides that Mr. McClellan will be employed as Executive Vice President, CFO, until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base salary of $700,000.

Mr. McClellan is eligible to be considered for an annual cash incentive with a target of 100% of his then-current base salary, and for equity-based awards under our equity compensation plan. He is eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. In conjunction with Mr. McClellan’s relocation to Israel, he is entitled to relocation benefits in accordance with the terms of our relocation policy. While he is based in Israel, he is entitled to a housing allowance of up to 21,500 Israeli shekels per month ($5,989 using a 2018 average monthly exchange rate of 3.59 shekels per U.S. dollar).

The agreement also contains noncompetition and nonsolicitation covenants for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.

Dr. Carlo de Notaristefani

On August 6, 2012, we entered into an employment agreement with Dr. de Notaristefani which was most recently amended and restated on February 7, 2018. The agreement provides that Dr. de Notaristefani will

 

 

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serve in a senior global operations position, until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base salary of $836,400.

Dr. de Notaristefani is eligible to participate in the Company’s annual cash incentive plan with a target of 100% of his then current base salary, and for equity-based awards under our equity compensation plan. He is eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. Under the agreement, Dr. de Notaristefani is also provided with a car or a car allowance.

The agreement also contains noncompetition and nonsolicitation covenants for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.

Dr. Hafrun Fridriksdottir

On June 18, 2017, we entered into an executive employment agreement with Dr. Fridriksdottir. The agreement provides that Dr. Fridriksdottir will serve in a senior R&D position until her death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base salary of $720,000.

Dr. Fridriksdottir is eligible to be considered for an annual cash incentive and for equity-based awards under our equity compensation plan. She is eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. Under the agreement, Dr. Fridriksdottir is also provided with a car allowance.

The agreement also contains noncompetition and nonsolicitation covenants for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.

Mark Sabag

On December 22, 2013, we entered into an executive employment agreement with Mr. Sabag. The agreement provides that Mr. Sabag will serve as Group Executive Vice President, Human Resources until his death, disability, aged retirement, termination with or without cause or resignation with or without good reason. Mr. Sabag is eligible to be considered for an annual cash incentive and for equity-based awards under our equity compensation plan. We agreed to provide Mr. Sabag with a company or leased car grossed-up for applicable taxes. We also agreed to provide certain pension and severance fund contributions pursuant to Israeli law (by both the Company and Mr. Sabag), and group life insurance and other benefits customary for executives in Israel.

Mr. Sabag also agreed to a noncompetition covenant for 12 months after termination, nondisclosure and nondisparagement covenants and an assignment of inventions.

2018 Pay Ratio

The CEO pay ratio rule permits the use of a median employee for up to three years unless there has been a meaningful change to a company’s employee population. Due to the execution of our significant restructuring plan, we determined that there was a meaningful change to our employee population and so we re-determined a median employee for pay ratio purposes.

We have estimated the compensation of the 2018 median employee to be $73,171. The annual total compensation of our CEO was $32,469,875. The ratio of the annual total compensation of our CEO to that of the annual total compensation of our median employee was 444 to 1. We note that a substantial portion of our CEO’s total compensation for 2018 was the $20 million sign-on cash award he received in accordance with his employment agreement. Excluding the sign-on cash award, the ratio would have been 170 to 1.

 

 

Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement    75


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Executive Compensation

 

 

We selected December 31, 2018, as the date upon which we would identify the “median employee” and included employees from all relevant countries. Earnings of our employees outside the U.S. were converted to U.S. dollars using the average December currency exchange rates.

To identify the “median employee,” we utilized the annualized 2018 base salary and target annual cash incentive for our consistently applied compensation measure because we believe that this measure reasonably reflects the annual compensation of our employees.

Using this measure, we identified a “median employee” who is a full-time, salaried employee located in Israel. We totaled all of the elements of the employee’s compensation for 2018 in the same manner as the CEO and in accordance with SEC Summary Compensation Table disclosure requirements, which resulted in an annual total compensation of $73,171, of which $25,196 is base salary, $9,823 is non-equity incentive compensation, and $38,152 is comprised of Company contributions to a pension fund, as is required by Israeli law, and other compensation such as overtime pay, travel and other cash allowances, and Company contributions to a study fund, as is common practice for Israel-based employees of the Company.

Because the SEC rules for identifying the median of the annual total compensation of our employees and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio for our Company, as other companies have headquarters offices in different countries, have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.

 

 

76     Teva Pharmaceutical Industries Ltd.  2019 Proxy Statement


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Executive Compensation

 

 

2018 Grants of Plan-Based Awards

 

               

 

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (1)

 

 

Estimated Future Payouts
Under Equity Incentive